The Regal Cycle Company manufactures three types of bicyclesâadirt bike, a mountain bike, and a racing bike. Data on sales andexpenses for the past quarter follow:
Total Dirt
Bikes Mountain Bikes Racing
Bikes Sales $ 928,000 $ 266,000 $ 404,000 $ 258,000 Variable manufacturing andselling expenses 461,000 116,000 192,000 153,000 Contribution margin 467,000 150,000 212,000 105,000 Fixed expenses: Advertising, traceable 69,800 8,300 41,000 20,500 Depreciation of specialequipment 43,700 20,700 7,300 15,700 Salaries of product-linemanagers 115,800 40,800 38,700 36,300 Allocated common fixedexpenses* 185,600 53,200 80,800 51,600 Total fixed expenses 414,900 123,000 167,800 124,100 Net operating income (loss) $ 52,100 $ 27,000 $ 44,200 $ (19,100)
*Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by theracing bikes and wants a recommendation as to whether or not theline should be discontinued. The special equipment used to produceracing bikes has no resale value and does not wear out.
Required:
1. What is the financial advantage (disadvantage) per quarter ofdiscontinuing the Racing Bikes?
2. Should the production and sale of racing bikes bediscontinued?
3. Prepare a properly formatted segmented income statement thatwould be more useful to management in assessing the long-runprofitability of the various product lines.
The Regal Cycle Company manufactures three types of bicyclesâadirt bike, a mountain bike, and a racing bike. Data on sales andexpenses for the past quarter follow:
| Total | Dirt Bikes | Mountain Bikes | Racing Bikes | |||||||||
| Sales | $ | 928,000 | $ | 266,000 | $ | 404,000 | $ | 258,000 | ||||
| Variable manufacturing andselling expenses | 461,000 | 116,000 | 192,000 | 153,000 | ||||||||
| Contribution margin | 467,000 | 150,000 | 212,000 | 105,000 | ||||||||
| Fixed expenses: | ||||||||||||
| Advertising, traceable | 69,800 | 8,300 | 41,000 | 20,500 | ||||||||
| Depreciation of specialequipment | 43,700 | 20,700 | 7,300 | 15,700 | ||||||||
| Salaries of product-linemanagers | 115,800 | 40,800 | 38,700 | 36,300 | ||||||||
| Allocated common fixedexpenses* | 185,600 | 53,200 | 80,800 | 51,600 | ||||||||
| Total fixed expenses | 414,900 | 123,000 | 167,800 | 124,100 | ||||||||
| Net operating income (loss) | $ | 52,100 | $ | 27,000 | $ | 44,200 | $ | (19,100) | ||||
*Allocated on the basis of sales dollars.
Management is concerned about the continued losses shown by theracing bikes and wants a recommendation as to whether or not theline should be discontinued. The special equipment used to produceracing bikes has no resale value and does not wear out.
Required:
1. What is the financial advantage (disadvantage) per quarter ofdiscontinuing the Racing Bikes?
2. Should the production and sale of racing bikes bediscontinued?
3. Prepare a properly formatted segmented income statement thatwould be more useful to management in assessing the long-runprofitability of the various product lines.
