The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun

Question

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 quarter follow: Dirt Mountain Racing Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses $ 919,000 $265,000 $ 400,000 $ 254,000 462,000 112,000 457,000 153,000 205, 195,000 155,000 40,10020,200 15,500 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed ex 69,200 44,100 20,900 8,900 114,400 40,200 183,800 53,000 411,500 123,000 7,700 38,700 80,000 35,500 50,800 penses Total fixed expenses Net operating income (loss) $ 45,500 30,000 $ 38,500 (23,000) 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

1a Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 919000 665000 -254000 Variable manufacturing and selling expenses 462000 307000 155000 Contribution margin (loss) 457000 358000 -99000 Fixed expenses: Advertising, traceable 69200 49000 20200 Depreciation on special equipment 44100 44100 0 Salaries of product manager 114400 78900 35500 Common allocated costs 183800 183800 0 Total fixed expenses 411500 355800 55700 Net operating income (loss) 45500 2200 -43300 1b No 2a Total Dirt Bikes Mountain Bikes Racing Bikes Sales 919000 265000 400000 254000 Variable manufacturing and selling expenses 462000 112000 195000 155000 Contribution margin (loss) 457000 153000 205000 99000 Traceable fixed expenses: Advertising, traceable 69200 8900 40100 20200 Depreciation on special equipment 44100 20900 7700 15500 Salaries of product manager 114400 40200 38700 35500 Total traceable fixed expenses 227700 70000 86500 71200 Product line segment margin 229300 83000 118500 27800 Common fixed expenses 183800 Net operating income (loss) 45500 2b Yes

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.