Question

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: Dirt Mountain Racing Total Bikes Bikes Bikes $920,000 $264,000 $ 404,000 $ 252,000 475,000 117,000 199,000 159,000 445,000 147,000 205,000 93,000 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) 70,400 43,800 8,800 20,100 40,700 7,800 20,900 15,900 115,200 40,800 38,900 35,500 184,090 52,800 413,400 122,500 $ 31,600 $ 24,500 $ 80,800 50,400 168,200 122,700 36,800 $(29,700) *Allocated on the basis of sales dollars. 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 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. Totals Dirt Bikes Mountain Bikes Racing Bikes 100 Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) Required 2 Required 3 >

Answer 1

As per HOMEWORKLIB POLICY one question should be posted at a time, please post other question separately. Here answering the first question below:

1		Current Total	Total if racing bikes are dropped	Difference: Net operating income increase or (decrease)
	Sales	$       9,20,000	$       6,68,000	$     -2,52,000
	Variable manufacturing and selling expenses	$       4,75,000	$       3,16,000	$       1,59,000
	Contribution margin (loss)	$       4,45,000	$       3,52,000	$         -93,000
	Fixed expenses:
	Advertising, traceable	$           70,400	$           49,500	$           20,900
	Depreciation on special equipment	$           43,800	$           43,800	$                    -
	Salaries of product managers	$       1,15,200	$           79,700	$           35,500
	Allocated common expense	$       1,84,000	$       1,84,000	$                    -
	Total fixed expenses	$       4,13,400	$       3,57,000	$           56,400
	Net operating income (loss)	$           31,600	$           -5,000	$         -36,600
2	No
	Discontinuation of Production and sale of racing bikes will incur more loss than existing loss from the unit
3		Total	Dirt Bikes	Mountain Bikes	Racing Bikes
	Sales	$       9,20,000	$       2,64,000	$       4,04,000	$       2,52,000
	Variable manufacturing and selling expenses	$       4,75,000	$       1,17,000	$       1,99,000	$       1,59,000
	Contribution margin (loss)	$       4,45,000	$       1,47,000	$       2,05,000	$           93,000
	Traceable Fixed expenses:
	Advertising, traceable	$           70,400	$             8,800	$           40,700	$           20,900
	Depreciation on special equipment	$           43,800	$           20,100	$             7,800	$           15,900
	Salaries of product managers	$       1,15,200	$           40,800	$           38,900	$           35,500
	Total traceable fixed expenses	$       2,29,400	$           69,700	$           87,400	$           72,300
	Product line segment margin (loss)	$       2,15,600	$           77,300	$       1,17,600	$           20,700
	Allocated common fixed expense	$       1,84,000
	Net operating income (loss)	$           31,600