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 | $ | 925,000 | $ | 266,000 | $ | 406,000 | $ | 253,000 | ||||
Variable manufacturing and selling expenses | 468,000 | 113,000 | 203,000 | 152,000 | ||||||||
Contribution margin | 457,000 | 153,000 | 203,000 | 101,000 | ||||||||
Fixed expenses: | ||||||||||||
Advertising, traceable | 69,600 | 8,500 | 40,300 | 20,800 | ||||||||
Depreciation of special equipment | 43,500 | 20,600 | 7,400 | 15,500 | ||||||||
Salaries of product-line managers | 116,100 | 40,300 | 38,800 | 37,000 | ||||||||
Allocated common fixed expenses* | 185,000 | 53,200 | 81,200 | 50,600 | ||||||||
Total fixed expenses | 414,200 | 122,600 | 167,700 | 123,900 | ||||||||
Net operating income (loss) | $ | 42,800 | $ | 30,400 | $ | 35,300 | $ | (22,900) | ||||
*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.
1 ( a) - Impact on NOI | |||||
Current Total | Total if Racing Bikes are dropped | Difference | |||
Sales | 925000 | 672000 | -253000 | ||
Less:- variable costs | 468000 | 316000 | 152000 | ||
Contribution margin | 457000 | 356000 | -101000 | ||
Fixed expenses : | |||||
Advertising | 69600 | 48800 | 20800 | ||
Depreciation | 43500 | 43500 | 0 | ||
Salaries | 116100 | 79100 | 37000 | ||
Allocated FC | 185000 | 185000 | 0 | ||
Total Fixed expenses | 414200 | 356400 | 57800 | ||
NOI | 42800 | -400 | -43200 | ||
1 ( b) - No , the production and sale of racing bikes should not be dicontinued | |||||
as it will result in decrease of NOI by $ 43200. | |||||
2 ( a ) - Segmented Income Statement | |||||
Total | Dirt Bikes | Mountain Bikes | Racing Bikes | ||
Sales | 925000 | 266000 | 406000 | 253000 | |
Less:- variable costs | 468000 | 113000 | 203000 | 152000 | |
Contribution margin | 457000 | 153000 | 203000 | 101000 | |
Traceable Fixed expenses :- | |||||
Advertising | 69600 | 8500 | 40300 | 20800 | |
Depreciation | 43500 | 20600 | 7400 | 15500 | |
Salaries | 116100 | 40300 | 38800 | 37000 | |
Total Traceable FC | 229200 | 69400 | 86500 | 73300 | |
SEGMENT MARGIN | 227800 | 83600 | 116500 | 27700 | |
Allocated FC | 185000 | ||||
NOI | 42800 | ||||
Part 2- b- Yes, segmented Income statement format would be more useful | |||||
to management in assessing the long run financial viability of the various | |||||
services as the revenue generated by each service and cost incurred by each service | |||||
can easily be identified. |
The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a...
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 $ 926,000 $ 264,000 $ 405,000 $ 257,000 Variable manufacturing and selling expenses 466,000 119,000 197,000 150,000 Contribution margin 460,000 145,000 208,000 107,000 Fixed expenses: Advertising, traceable 69,200 8,300 40,700 20,200 Depreciation of special equipment 43,800 20,500 7,500 15,800 Salaries of product-line managers 114,700...
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 Total Bikes Bikes Bikes $ 925,000 $268,000 $ 406,000 $ 251,000 477,000 111,000 208,000 158,000 448,000 157,000 198,000 93,000 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...
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 $ 268,000 $ 404,000 $ 255,000 Variable manufacturing and selling expenses 478,000 120,000 199,000 159,000 Contribution margin 449,000 148,000 205,000 96,000 Fixed expenses: Advertising, traceable 70,000 8,600 40,700 20,700 Depreciation of special equipment 43,700 20,200 7,700 15,800 Salaries of product-line managers 116,100...
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 Total Bikes Bikes Bikes $ 932,000 $269,000 $ 405,000 $ 258,000 477,000 117,000 209,000 151,000 455,000 152,000 196,000 107,000 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...
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 $ 917,000 $ 266,000 $ 400,000 $ 251,000 Variable manufacturing and selling expenses 464,000 116,000 196,000 152,000 Contribution margin 453,000 150,000 204,000 99,000 Fixed expenses: Advertising, traceable 69,200 8,200 40,500 20,500 Depreciation of special equipment 44,300 21,000 7,500 15,800 Salaries of product-line managers 114,200...
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 Total Bikes Bikes Bikes $ 921,000 $261,000 $ 400,000 $ 260,000 470,000 117,000 203,000 150,000 451,000 144,000 197,000 110,000 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...
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 Total Bikes Bikes Bikes $ 930,000 $266,000 $ 404,000 $ 260,000 480,000 116,000 208,000 156,000 450,000 150,000 196,000 104,000 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...
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 $ 932,000 $ 269,000 $ 406,000 $ 257,000 Variable manufacturing and selling expenses 479,000 116,000 210,000 153,000 Contribution margin 453,000 153,000 196,000 104,000 Fixed expenses: Advertising, traceable 69,600 8,600 40,500 20,500 Depreciation of special equipment 42,900 20,400 7,200 15,300 Salaries of product-line managers 114,600...
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 $ 269,000 $ 406,000 $ 252,000 Variable manufacturing and selling expenses 471,000 115,000 197,000 159,000 Contribution margin 456,000 154,000 209,000 93,000 Fixed expenses: Advertising, traceable 70,300 8,700 41,000 20,600 Depreciation of special equipment 43,900 20,900 7,500 15,500 Salaries of product-line managers 115,900...
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 $ 930,000 $ 265,000 $ 410,000 $ 255,000 Variable manufacturing and selling expenses 473,000 111,000 207,000 155,000 Contribution margin 457,000 154,000 203,000 100,000 Fixed expenses: Advertising, traceable 69,800 8,800 40,700 20,300 Depreciation of special equipment 44,400 20,800 7,700 15,900 Salaries of product-line managers 115,200...