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 Racking Bikes Sales 300000 90000 150000 60000 Variable manufacturing and selling expenses 180000 63000 90000 27000 contribugin margin 180,000 63,000 90,000 27,000 Advertising, traceable 30,000 10,000 14,000 6,000 depriciation of special equipment 23,000 6,000 9,000 8,000 salaries of product line managers 35,000 12,000 13,000 10,000 allocated common fixed expenses 60,000 18,000 30,000 12,000 Total fixed expenses 148,000 46,000 66,000 36,000 Net operating income 32,000 17,000 24,000 -9,000
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.
1a. What is the impact on net operating income by discontinuingracing bikes?
Current total total if racing bikes are dropped difference: net poerating income increase or (decrease) Contributionmarginloss fixed expenses Total fixed expenses Net operating income (loss)
2a. Prepare a segment income statement Totals Dirt bikes mountain bikes racing bikes Contribution margin (loss) traceable fixed expenses total traceable fixed expenses net operating income (loss)
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 | Racking Bikes | |
| Sales | 300000 | 90000 | 150000 | 60000 |
| Variable manufacturing and selling expenses | 180000 | 63000 | 90000 | 27000 |
| contribugin margin | 180,000 | 63,000 | 90,000 | 27,000 |
| Advertising, traceable | 30,000 | 10,000 | 14,000 | 6,000 |
| depriciation of special equipment | 23,000 | 6,000 | 9,000 | 8,000 |
| salaries of product line managers | 35,000 | 12,000 | 13,000 | 10,000 |
| allocated common fixed expenses | 60,000 | 18,000 | 30,000 | 12,000 |
| Total fixed expenses | 148,000 | 46,000 | 66,000 | 36,000 |
| Net operating income | 32,000 | 17,000 | 24,000 | -9,000 |
| 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. 1a. What is the impact on net operating income by discontinuingracing bikes?
2a. Prepare a segment income statement
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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 | 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.
