Question

Check my work 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 Sales $926,000 $265,000 $400,000 $ 253,000 Variable manufacturing and 467,000 112,000 199,000 156,000 selling expenses Contribution margin 459,000 153,000 209,000 97.000 Fixed expenses: Advertising, 70,000 8,600 traceable 40,600 20,800 Depreciation of special 43,200 20,800 7,200 15,200 equipment Salaries of product-line 114,400 40,800 38,100 35,500 managers Allocated common 185,200 185.200 53,000 81,600 50,600 fixed expenses. Total fixed expenses 412,800 123,200 167,500 122,100 Net operating $ 46,200 $ 29,800 $ 41,500 $(25,100) income (loss) "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 2 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter Required 1 Required 2 >

Answer 1

Solution 1:

Incremental Analysis - Regal Cycle - Racing Bikes
Particulars	Continue Racing Bikes (Alt 1)	Discontinue Racing Bikes (Alt2)	Financial advantage (disadvantage) of discontinuing
Sales	$2,53,000	$0	-$2,53,000
Variable manufacturing and selling expenses	$1,56,000	$0	-$1,56,000
Contribution Margin	$97,000	$0	-$97,000
Fixed Expenses:
Advertising Traceable	$20,800	$0	-$20,800
Salaries of Product line manager	$35,500	$0	-$35,500
Net Income	$40,700	$0	-$40,700

Financial disadvanatge = - $40,700

Solution 2:

No. the production and sale of racing bike should not be discontinued.

Solution 3:

Regal Cycle Company
Segmanted Income Statement
Particulars	Total	Dirt bikes	Mountain bikes	Racing Bikes
Sales	$9,26,000	$2,65,000	$4,08,000	$2,53,000
Variable Expenses	$4,67,000	$1,12,000	$1,99,000	$1,56,000
Contribution margin	$4,59,000	$1,53,000	$2,09,000	$97,000
Less: Traceable Fixed Costs:
Advertising	$70,000	$8,600	$40,600	$20,800
Depreciation	$43,200	$20,800	$7,200	$15,200
Salaries of Product line managers	$1,14,400	$40,800	$38,100	$35,500
Total traceable fixed expense	$2,27,600	$70,200	$85,900	$71,500
product line Segment Margin	$2,31,400	$82,800	$1,23,100	$25,500
Less: Common fixed expenses	$1,85,200
Net Operating Profit	$46,200