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 $ 926,000 $ 265,000 $ 408,000 $ 253,000 Variable manufacturing andselling expenses 466,000 116,000 194,000 156,000 Contribution margin 460,000 149,000 214,000 97,000 Fixed expenses: Advertising, traceable 69,400 8,400 40,400 20,600 Depreciation of specialequipment 43,300 20,900 7,300 15,100 Salaries of product-linemanagers 114,500 40,300 38,100 36,100 Allocated common fixedexpenses* 185,200 53,000 81,600 50,600 Total fixed expenses 412,400 122,600 167,400 122,400 Net operating income (loss) $ 47,600 $ 26,400 $ 46,600 $ (25,400)
*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.
1. What is the financial advantage (disadvantage) per quarter ofdiscontinuing the Racing Bikes?
2. Should the production and sale of racing bikes bediscontinued?
Yesradio button checked1 of 2 Noradio buttonunchecked2 of 2
3. Prepare a properly formatted segmented income statement thatwould be more useful to management in assessing the long-runprofitability of the various product lines.
Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) 0 0 0 0 Traceablefixed expenses: Total traceable fixedexpenses 0 0 0 0 0 $0 $0 $0 Net operating income(loss) $0
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 | $ | 926,000 | $ | 265,000 | $ | 408,000 | $ | 253,000 | ||||
| Variable manufacturing andselling expenses | 466,000 | 116,000 | 194,000 | 156,000 | ||||||||
| Contribution margin | 460,000 | 149,000 | 214,000 | 97,000 | ||||||||
| Fixed expenses: | ||||||||||||
| Advertising, traceable | 69,400 | 8,400 | 40,400 | 20,600 | ||||||||
| Depreciation of specialequipment | 43,300 | 20,900 | 7,300 | 15,100 | ||||||||
| Salaries of product-linemanagers | 114,500 | 40,300 | 38,100 | 36,100 | ||||||||
| Allocated common fixedexpenses* | 185,200 | 53,000 | 81,600 | 50,600 | ||||||||
| Total fixed expenses | 412,400 | 122,600 | 167,400 | 122,400 | ||||||||
| Net operating income (loss) | $ | 47,600 | $ | 26,400 | $ | 46,600 | $ | (25,400) | ||||
*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.
1. What is the financial advantage (disadvantage) per quarter ofdiscontinuing the Racing Bikes?
2. Should the production and sale of racing bikes bediscontinued?
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3. Prepare a properly formatted segmented income statement thatwould be more useful to management in assessing the long-runprofitability of the various product lines.
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Related questions
| 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:
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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 | Mountain Bikes | Racing | |||||||||
Sales | $ | 930,000 | $ | 269,000 | $ | 402,000 | $ | 259,000 | ||||
Variable manufacturing and selling expenses | 467,000 | 117,000 | 192,000 | 158,000 | ||||||||
Contribution margin | 463,000 | 152,000 | 210,000 | 101,000 | ||||||||
Fixed expenses: | ||||||||||||
Advertising, traceable | 70,500 | 8,800 | 41,000 | 20,700 | ||||||||
Depreciation of special equipment | 42,500 | 20,200 | 7,100 | 15,200 | ||||||||
Salaries of product-line managers | 115,100 | 40,700 | 38,800 | 35,600 | ||||||||
Allocated common fixed expenses* | 186,000 | 53,800 | 80,400 | 51,800 | ||||||||
Total fixed expenses | 414,100 | 123,500 | 167,300 | 123,300 | ||||||||
Net operating income (loss) | $ | 48,900 | $ | 28,500 | $ | 42,700 | $ | (22,300) | ||||
*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.
