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Exercise The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data o
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Answer #1

1. Financial (disadvantage) per quarter: $-44200

Current Total Total If Racing Bikes Are Dropped Difference:
Financial advantage (disadvantage)
Sales 928000 673000 -255000
Variable manufacturing and selling expenses 480000 325000 155000
Contribution margin (loss) 448000 348000 -100000
Fixed expenses:
Advertising, traceable 69000 48400 20600
Depreciation on special equipment 43400 43400 0
Salaries of product-line managers 114300 79100 35200
Allocated common fixed expenses 185600 185600 0
Total fixed expenses 412300 356500 55800
Net operating income (loss) 35700 -8500 -44200

2. No.

The production and sale of racing bikes should not be discontinued as it will result in a financial disadvantage.

3.

Segmented Income Statement
Totals Dirt Bikes Mountain Bikes Racing Bikes
Sales 928000 269000 404000 255000
Variable manufacturing and selling expenses 480000 119000 206000 155000
Contribution margin (loss) 448000 150000 198000 100000
Traceable fixed expenses:
Advertising 69000 8300 40100 20600
Depreciation on special equipment 43400 20700 7100 15600
Salaries of product-line managers 114300 40300 38800 35200
Total traceable fixed expenses 226700 69300 86000 71400
Segment operating income 221300 80700 112000 28600
Common fixed expenses 185600
Net operating income (loss) $ 35700
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