Question

hi thank you, can you explain in detail how to solve the part on the 1st part that I got wrong.

Exercise 12-2 Dropping or Retaining a Segment (LO12-2] The Regal Cycle Company manufectures three types of blcycles-a din bike, a mountain bike, and a racing bike. Deta on sales and expenses for the past quarter follow irt ntain Racing akes toal $126,c0 $249,s00 405,000 2sa,000 Sales Variale manufacturing and selling 444,co 4,0 a,00 asa0 xpenses Castrtin rgia Pised expenses Adrertiaing, trace able peiation ad apeial quip Salaries ot predait-ise ngers Allocated common fixed expenses Ttal fied epen 9,49 440,80 55,00 20. ,seo 0,se 40,70 53,400 413,60 33, s006 s4,4031,100 3,200 S22,s00) 4,700 2-100 is, as,s00 s,400 121,00 9,70 4,30 4,40 5.20 Nt operating ineone (es) Allocated on the basis of sales dolars Management is concemed about the continued lesses 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: 2. Should the preduction and sale of racing bkes be discontinued? 3. Prepare a properly formatted segmented income statement that would be mose usefal to management in assessing the long-run profitability of the various product lines Allocated on the basis of sales dolars Management is concemed 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 sacing bikes has no resale value and does not wear out Required What is the inancial advantage idisadvantagel per quarter of discontinuing the Racing Bikes? Should the production and sale of racing bikes be dscontinued? 3. Prepare a properly formatted segmented income statement that would be mone usefal to management in assessing the long run profeability of the various product lines Answer is net complete. Complete this question by entering your answers in the tabs below. Required 1Required 2 equred 3 What is the financial advantage (dieadvantage) per quarter of decontinung the Racing Bikes Financial (avaage per uar(2900) Answer is net conplete Complete this question by entering your answers in the tabs below. Reqired Required 2ered Prepare a properly formatted segmented income statement that wouid be mone useful to management in assessing the long un prefitabity of the vaieus product lines acing Mounisin Totals Dt Bk Bkes Bkes Contribution margn (os 0 0 Traceable fed expenses Total traceable fod expenses 0 0 Product Ine segment margin oss 0 Net operating income (oss) Rqud

Answer 1

Calculation of financial advantage (disadvantage) per quarter if racing bikes is discontinued
Loss of contribution margin	-$99,000.00
Savings in advertising costs	$20,100.00
Savings in salaries of product line managers	$35,500.00
Financial disadvantage	-$43,400.00
Depreciation of special equipment is sunk costs which would continue even if racing bikes is discontinued
Allocated common fixed expenses would now be allocated to Dirt bikes and mountain bikes and thus there is no cost savings.
Advertising and salary expense is related to racing bikes and thus it would be saved if it is discontinued.