Question

The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a ra expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 923,000 $263,000 $ 402,000 $ 258,000 472,000 118,000 197,000 157,000 451,000 145,000 205,000 101,000 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) 70,300 8,400 41,000 20,900 43,400 20,600 7,300 15,500 115,100 40,300 38,800 36,000 184,600 52,600 80,400 51,600 413,400 121,900 167,500 124,000 $ 37,600 $ 23,100 $ 37,500 $(23,000) "Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a recommen the line should be discontinued. The special equipment used to produce racing bikes has no resale value 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 i profitability of the various product lines. Complete this question by ente the tabs below. Required 1 Required 2 Required < Prey 2 of 7 Next >

Answer 1

What impact on net operating income by discountinuningracing bikes Total IF Difference in Racing bikes net Operating Current total Are Droped income 923000 665000 -258000 472000 315000 157000 451000 350000 -101000 20900 Sales Varaible Expenses Contribution Marrgin Fixed Cost Advertisement Tracable Depreciation on Special Equipment Salaries of Product Manager Common Allocated Cost Total Fixed Cost Net Operating Income (Loss) 36000 70300 43400 115100 184600 413400 37600 49400 43400 79100 184600 356500 -6500 56900 -44100 Financial Advantage ( Disadvantage) of Drop the Racing Bikes Financial Disadvantage Per Quarter : ($44,100) should the Product and sales of racing Bikes be discontinues ? Answer : No

Segmented Income Statement Total Dirt Bikes Mountain Bikes Racing Bikes Sales 923000 263000 402000 258000 Varaible Expenses 472000 118000 1970001 157000 Contribution Marrgin (loss) 451000 145000 205000 101000 Fixed Cost Advertisement Tracable 70300 8400 41000 20900 Depreciation on Special Equipment 43400 20600 7300 15500 Salaries of Product Manager 115100 40300 38800 36000 Total Traceable Fixed Expenses 228800 693001 87100 72400 Product line Segment Margin (loss) 222200 75700 117900 28600 common Fixed cost 184600 Net Operating Income (Loss) 37600