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 $923,000 469,000 454,000 69,300 44,100 115,700 Dirt Bikes $265,000 117,000 148,000 184,600 413,700 $ 40,300 Mountain Bikes $ 400,000 200,000 200,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable. Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dolls. 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. 40,400 7,700 Racing Bikes $ 250,000 152,000 106,000 8,700 20,500 40,500 53,000 122,700 $ 25,300 $33,400 $(18,400) 38,500 80,000 166,600 20,200 15,900 36,700 51,600 124,400 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: Total $923,000 469,000 454,000 69,300 44,100 115,700 Dirt Bikes $265,000 117,000 148,000 184,600 413,700 $ 40,300 Mountain Bikes $ 400,000 200,000 200,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable. Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dolls. 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. 40,400 7,700 Racing Bikes $ 250,000 152,000 106,000 8,700 20,500 40,500 53,000 122,700 $ 25,300 $33,400 $(18,400) 38,500 80,000 166,600 20,200 15,900 36,700 51,600 124,400 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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Transcribed Image Text: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:
Sales
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Total
$923,000
469,000
454,000
69,300
44,100
Required 1 Required 2 Required 3
Dirt Bikes
$ 265,000
117,000
148,000
Advertising, traceable.
Depreciation of special equipment
Salaries of product-line managers.
Allocated common fixed expenses*
Total fixed expenses
Net operating income (loss)
"Allocated on the basis of sales dollats.
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.
115,700
184,600
413,700
$ 40,300
Complete this question by entering your answers in the tabs below.
8,700
20,500
40,500
Mountain
Bikes
$ 400,000
200,000
200,000
40,400
7,700
38,500
80,000
166,600
$ 25,300 $33,400
53,000
122,700
Racing Bikes
$ 258,000
152,000
106,000
20,200
15,900
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.
36,700
51,600
124,400
$(18,400)
Transcribed Image Text: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.
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
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.
Required 1
Complete this question by entering your answers in the tabs below.
Required 2
Yes
No
Should the production and sale of racing bikes be discontinued?
< Required 1
Required 3
Contribution margin (loss)
Traceable fixed expenses:
Required 1 Required 2 Required 3
< Required 1
Complete this question by entering your answers in the tabs below.
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)
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.
Required 2 >
$
Totals
< Required 2
Required 3 >
0
0
Dirt Bikes
0
0 $
0
Mountain Bikes
0
0 $
Required 3 >
0
Racing Bikes
0
0 $
0
0
0
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