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: Dirt Mountain Racing Total Bikes Bikes Bikes $928,000 $268,000 $407,000 $ 253,000 462,000 114,000 197,000 151,000 466,000 154,000 210,000 102,000 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) 69,600 43,300 8,700 40,800 20,2008,000 20,100 15,100 115,400 40,400 38,100 36,900 185,600 53,600 81,400 50,600 413,900 122,900 168,300 122,700 $ 52,100 $ 31,100 $ 41,700 $ (20,700) *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. Complete this question by entering your answers in the tabs below. Required Required Required 1 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter

Answer 1

1 answer segmented income statement (after discontinued racing bikes) products total dirt bikes mountain bikes racing bikes sales 675000 268000 407000 variable manufacturing and selling 311000 114000 197000 contribution margin 364000 154000 210000 traceable fixed costs advertising 49500 8700 40800 i depreciation of special equip 43300 20200 8000 151001 2 salaries of product line managers 78500 40400 38100 B total traceable fixed costs 171300 69300 86900 15100 7 product line segment margin (loss) 192700 84700 123100 -15100 5 common allocated fixed costs 185600 5 net operating income (loss) 7100 finacial advantage (disadvantage )=52100- B 7100 45000

2) answer : racing bikes should not be discontinued 3 answer segmented income statement products total dirt bikes mountain bikes racing bikes 928000 268000 407000 253000 462000 114000 197000 151000 466000 154000 210000 102000 Im sales variable manufacturing and selling contribution margin (loss) traceable fixed costs advertising depreciation of special equip salaries of product line managers total traceable fixed costs product line segment margin (loss) common allocated fixed costs net operating income (loss) 69600 43300 115400 228300 237700 185600 52100 8700 20200 40400 69300 84700 40800 8000 38100 86900 123100 20100 15100 36900 72100 29900