Check my work The Regal Cycle Company manufactures three types of bicycles-a dir

Question

Check my work The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Bikes Total Bikes Bikes 10 points Sales $922,000 $265,000 406,000 251,000 474,000 113,000 208,000 153, 000 98,000 20,800 Variable manufacturing and selling expenses Contribution margin Fixed expenses: 448,000 152,000 198,000 eBook Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,400 20,600 114,800 40,000 53,000 412,900 122,000 40,600 7,900 38,000 81,200 167,700 69,800 15,400 36,800 50,200 123,200 35,100 30,000 30,300 (25,200) Hint 43,900 Print 184,400 Total fixed expenses Net operating income (loss) References Allocated on the basis of sales dollars Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out. Required 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.

Explanation / Answer

1 Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 922000 671000 -251000 Variable manufacturing and selling expenses 474000 321000 153000 Contribution margin (loss) 448000 350000 -98000 Fixed expenses: Advertising, traceable 69800 49000 20800 Depreciation on special equipment 43900 43900 0 Salaries of product manager 114800 78000 36800 Common allocated costs 184400 184400 0 Total fixed expenses 412900 355300 57600 Net operating income (loss) 35100 -5300 -40400 Financial (disadvantage) ($40400) 2 No 3 Total Dirt Bikes Mountain Bikes Racing Bikes Sales 922000 265000 406000 251000 Variable manufacturing and selling expenses 474000 113000 208000 153000 Contribution margin (loss) 448000 152000 198000 98000 Traceable fixed expenses: Advertising, traceable 69800 8400 40600 20800 Depreciation on special equipment 43900 20600 7900 15400 Salaries of product manager 114800 40000 38000 36800 Total traceable fixed expenses 228500 69000 86500 73000 Product line segment margin 219500 83000 111500 25000 Common fixed expenses 184400 Net operating income (loss) 35100

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