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 past quarter follow: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 927,000 $ 267,000 $ 408,000 $ 252,000 Variable manufacturing and selling expenses 459,000 114,000 191,000 154,000 Contribution margin 468,000 153,000 217,000 98,000 Fixed expenses: Advertising, traceable 70,100 8,400 40,700 21,000 Depreciation of special equipment 43,000 20,600 7,300 15,100 Salaries of product-line managers 114,900 40,200 38,900 35,800 Allocated common fixed expenses* 185,400 53,400 81,600 50,400 Total fixed expenses 413,400 122,600 168,500 122,300 Net operating income (loss) $ 54,600 $ 30,400 $ 48,500 $ (24,300) *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.

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 Sales Variable manufacturing and selling $927,000 $267,000 408,000 252,000 459,000 114,000 191,000 154,000 expenses Contribution margin Fixed expenses: 468, 000153,000 217,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed e:x 21,000 15,100 35,800 50,400 122,300 $ 54,600 30,400 48,500 (24,300) 8,400 20,600 40,200 185,400 53,400 40,700 7,300 38,900 81,600 413,400 122,600 168,500 70,100 43,000 114,900 expenses Total fixed expenses Net operating income (loss) 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

Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 927000 675000 -252000 Variable manufacturing and selling expenses 459000 305000 154000 Contribution margin (loss) 468000 370000 -98000 Fixed expenses: Advertising, traceable 70100 49100 21000 Depreciation on special equipment 43000 43000 0 Salaries of product managers 114900 79100 35800 Common allocated costs 185400 185400 0 Total fixed expenses 413400 356600 56800 Net operating income (loss) 54600 13400 -41200 Financial disadvantage=$41200 1b No 2 Totals Dirt Bikes BikesMountain Racing Bikes Sales 927000 267000 408000 252000 Variable manufacturing and selling expenses 459000 114000 191000 154000 Contribution margin (loss) 468000 153000 217000 98000 Traceable fixed expenses: Advertising, traceable 70100 8400 40700 21000 Depreciation on special equipment 43000 20600 7300 15100 Salaries of product managers 114900 40200 38900 35800 Total traceable fixed expenses 228000 69200 86900 71900 Product line segment margin 240000 83800 130100 26100 Common fixed expenses 185400 Net operating income (loss) 54600

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

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