Question

The Regal Cycle Company...

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: points Dirt Mountain Racing Total Bikes Bikes Bikes Bikes $928,000 $269,000 $ 403,000 $ 256,000 460,000 111,000 192,000 157,000 468,000 158,000 211,000 99,000 eBook 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) 69,400 43,500 114,800 185,600 413,300 $ 54,700 8,200 40,600 20,600 20,700 7,200 15,600 40,30038,300 36,200 53,800 80,600 51,200 123,000 166,700 123,600 $ 35,000 $ 44,300 $ (24,600) Hint Print *Allocated on the basis of sales dollars. References 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter | $ 24,600 Required 1 Required 2 >

Answer 1

Calculation of Financial Advantage ( Disadvantage ) Decrease in Contribution Margin 99000 Decreasein Expenses: Advertisement Tracable 20600 Salaries of Product Manager 36200 Total Decrease in Expenses 56800 Decrease in Net operating income: -42200 Finanical Disadvantge Financial Advantage (Disadvantage of Drop the Racing Bikes Financial Disadvantage : ( $42,200) should the Product and sales of racing Bikes be discontinues ? Answer: No

Segmented Income Statement Total Dirt Bikes Mountain Bikes Racing Bikes Sales 928000 269000 403000 2560001 |Varaible Expenses L 460000 1 110001 1920001 157000| Contribution Marrgin (loss 468000 158000 211000 990001 Fixed Cost Advertisement Tracable 69400 8200 40600 20600 Depreciation on Special Equipment 43500 20700 7200 15600 Salaries of Product Manager 114800 40300 38300 36200 Total Traceable Fixed Expenses 227700 69200 86100 72400 Product line Segment Margin (loss) 240300 88800 124900 26600 common Fixed cost 185600 Net Operating Income (Loss) 54700