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:
Total | Dirt Bikes |
Mountain Bikes | Racing Bikes |
|||||||||
Sales | $ | 922,000 | $ | 266,000 | $ | 404,000 | $ | 252,000 | ||||
Variable manufacturing and selling expenses | 477,000 | 118,000 | 200,000 | 159,000 | ||||||||
Contribution margin | 445,000 | 148,000 | 204,000 | 93,000 | ||||||||
Fixed expenses: | ||||||||||||
Advertising, traceable | 69,500 | 8,500 | 40,500 | 20,500 | ||||||||
Depreciation of special equipment | 43,300 | 20,200 | 7,700 | 15,400 | ||||||||
Salaries of product-line managers | 114,800 | 41,000 | 38,500 | 35,300 | ||||||||
Allocated common fixed expenses* | 184,400 | 53,200 | 80,800 | 50,400 | ||||||||
Total fixed expenses | 412,000 | 122,900 | 167,500 | 121,600 | ||||||||
Net operating income (loss) | $ | 33,000 | $ | 25,100 | $ | 36,500 | $ | (28,600) | ||||
*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.
1.
Racing Bikes | |
Sales | $(252,000) |
Variable manufacturing and selling expense | 159,000 |
Contribution margin | (93,000) |
Avoidable fixed expenses: | |
Advertising, traceable | 20,500 |
Salaries of product line managers | 35,300 |
Total avoidable fixed expenses | 55,800 |
Financial advantage (disadvantage) | $(37,200) |
2.
As per above results production and sale of racing bikes should not be discontinued.
3.
Total | Dirt Bike | Mountain Bike | Racing Bike | |
Sales | $922,000 | $266,000 | $404,000 | $252,000 |
Less: Variable manufacturing and selling expenses | 477,000 | 118,000 | 200,000 | 159,000 |
Contribution margin | 445,000 | 148,000 | 204,000 | 93,000 |
Less: Traceable fixed expenses: | ||||
Advertising, traceable | 69,500 | 8,500 | 40,500 | 20,500 |
Depreciation of special equipment | 43,300 | 20,200 | 7,700 | 15,400 |
Salaries of product line managers | 114,800 | 41,000 | 38,500 | 35,300 |
Total traceable fixed expenses | 227,600 | 69,700 | 86,700 | 71,200 |
Segment margin | 217,400 | 78,300 | 117,300 | 21,800 |
Less: Common fixed expenses | 184,400 | |||
Net operating income (loss) | $33,000 |
The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a...
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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 922,000 $ 268,000 $ 404,000 $ 250,000 Variable manufacturing and selling expenses 473,000 114,000 203,000 156,000 Contribution margin 449,000 154,000 201,000 94,000 Fixed expenses: Advertising, traceable 69,800 8,600 40,700 20,500 Depreciation of special equipment 43,500 20,300 7,900 15,300 Salaries of product-line managers 115,100...
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 $ 922,000 $264,000 $ 405,000 $ 253,000 463,000 110,000 195,000 158,000 459,000 154,000 210,000 95,000 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...
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 $ 930,000 $266,000 $ 404,000 $ 260,000 480,000 116,000 208,000 156,000 450,000 150,000 196,000 104,000 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...
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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 924,000 $ 262,000 $ 404,000 $ 258,000 Variable manufacturing and selling expenses 476,000 118,000 207,000 151,000 Contribution margin 448,000 144,000 197,000 107,000 Fixed expenses: Advertising, traceable 69,800 8,700 40,800 20,300 Depreciation of special equipment 44,300 20,700 8,000 15,600 Salaries of product-line managers 115,800...
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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 929,000 $ 266,000 $ 404,000 $ 259,000 Variable manufacturing and selling expenses 471,000 117,000 197,000 157,000 Contribution margin 458,000 149,000 207,000 102,000 Fixed expenses: Advertising, traceable 69,400 8,500 40,700 20,200 Depreciation of special equipment 43,100 20,100 7,300 15,700 Salaries of product-line managers 114,400...
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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 927,000 $ 268,000 $ 404,000 $ 255,000 Variable manufacturing and selling expenses 478,000 120,000 199,000 159,000 Contribution margin 449,000 148,000 205,000 96,000 Fixed expenses: Advertising, traceable 70,000 8,600 40,700 20,700 Depreciation of special equipment 43,700 20,200 7,700 15,800 Salaries of product-line managers 116,100...
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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 918,000 $ 262,000 $ 404,000 $ 252,000 Variable manufacturing and selling expenses 458,000 110,000 195,000 153,000 Contribution margin 460,000 152,000 209,000 99,000 Fixed expenses: Advertising, traceable 70,300 8,700 40,900 20,700 Depreciation of special equipment 44,000 20,500 7,600 15,900 Salaries of product-line managers 115,100...
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: $922,000 $269,000 $ 402,000 $ 251,000 477,000 118,000 204,000 155,000 445,000 151,000 198,000 96,000 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) 69,500 8,700 40,400 20,400 43,500 20,500 7,800...
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: Total $ 922,000 472,000 450,000 Dirt Mountain Racing Bikes Bikes Bikes $263,00 $ 405,000 $ 254, eee 111,eee 209.eee 152,eee 152,200 196,eee 182.eee 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...
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: 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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 928,000 $ 267,000 $ 401,000 $ 260,000 Variable manufacturing and selling expenses 458,000 113,000 193,000...