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Exercise 12-2 Dropping or Retaining a Segment [LO12-2] The Regal Cycle Company manufactures three types of bicycles-a dirt biRequired 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing BikesShould the production and sale of racing bikes be discontinued? OYes NoPrepare a properly formatted segmented income statement that would be more useful to management in assessing the long- run pr

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Answer #1
1
Current Total Total If Racing Bikes Are Dropped Difference: Net Operating Income
Sales 926000 673000 -253000
Variable manufacturing and selling expenses 471000 318000 153000
Contribution margin (loss) 455000 355000 -100000
Fixed expenses:
Advertising, traceable 69300 48500 20800
Depreciation on special equipment 43700 43700 0
Salaries of product manager 115300 79900 35400
Common allocated costs 185200 185200 0
Total fixed expenses 413500 357300 56200
Net operating income (loss) 41500 -2300 -43800
Financial (disadvantage) per quarter $(43800)
2
No, production and sale of racing bikes should not be discontinued
3
Total Dirt Bikes Mountain Bikes Racing Bikes
Sales 926000 269000 404000 253000
Variable manufacturing and selling expenses 471000 113000 205000 153000
Contribution margin (loss) 455000 156000 199000 100000
Traceable fixed expenses:
Advertising, traceable 69300 8400 40100 20800
Depreciation on special equipment 43700 20600 7300 15800
Salaries of product manager 115300 40900 39000 35400
Total traceable fixed expenses 228300 69900 86400 72000
Product line segment margin 226700 86100 112600 28000
Common fixed expenses 185200
Net operating income (loss) 41500
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