Regal mpany man ictures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: 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) Allocated on the basis of sales dollars. Total $ 930,000 467,000 463,000 69,800 43,800 113,900 186,000 413,500 $ 49,500 Dirt Bikes $ 268,000 118,000 150,000 8,200 20,300 40,200 53,600 122,300 $ 27,700 Mountain Bikes $ 408,000 192,000 216,000 40,700 7,800 38,400 81,600 168,500 $ 47,500 Racing Bikes $ 254,000 157,000 97,000 20,900 15,700 35,300 50,800 122,700 $ (25,700)

Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter8: Tactical Decision-making And Relevant Analysis
Section: Chapter Questions
Problem 45E
icon
Related questions
Question

1

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:
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)
Total
$ 930,000
467,000
463,000
69,800
43,800
113,900
186,000
413,500
$ 49,500
Dirt Bikes
$ 268,000
118,000
150,000
8,200
20,300
40,200
53,600
122,300
$ 27,700
Mountain
Bikes
$ 408,000
192,000
216,000
40,700
7,800
38,400
81,600
168,500
Racing Bikes
$ 254,000
157,000
97,000
20,900
15,700
35,300
50,800
122,700
$ 47,500 $ (25,700)
*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.
Transcribed Image Text: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: 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) Total $ 930,000 467,000 463,000 69,800 43,800 113,900 186,000 413,500 $ 49,500 Dirt Bikes $ 268,000 118,000 150,000 8,200 20,300 40,200 53,600 122,300 $ 27,700 Mountain Bikes $ 408,000 192,000 216,000 40,700 7,800 38,400 81,600 168,500 Racing Bikes $ 254,000 157,000 97,000 20,900 15,700 35,300 50,800 122,700 $ 47,500 $ (25,700) *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.
Expert Solution
steps

Step by step

Solved in 4 steps with 8 images

Blurred answer
Knowledge Booster
Cost classification
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning