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: 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 dollars. Total Dirt Bikes $ 920,000 466,000 454,000 $ 264,000 112,000 152,000 Mountain Bikes $ 405,000 198,000 Racing Bikes $ 251,000 156,000 207,000 95,000 69,800 8,900 40,400 20,500 44,000 20,500 7,500 16,000 115,600 40,100 38,800 36,700 184,000 52,800 81,000 50,200 413,400 122,300 167,700 123,400 $ 40,600 $ 29,700 $ 39,300 $ (28,400) 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: 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 dollars. Total Dirt Bikes $ 920,000 466,000 454,000 $ 264,000 112,000 152,000 Mountain Bikes $ 405,000 198,000 Racing Bikes $ 251,000 156,000 207,000 95,000 69,800 8,900 40,400 20,500 44,000 20,500 7,500 16,000 115,600 40,100 38,800 36,700 184,000 52,800 81,000 50,200 413,400 122,300 167,700 123,400 $ 40,600 $ 29,700 $ 39,300 $ (28,400) 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.
Chapter3: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 4PB: West Island distributes a single product. The companys sales and expenses for the month of June are...
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