The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data onsales and expenses for the past quarter follow:MountainRacing Bikes$ 256,000159,00097,000TotalDirt BikesBikes$ 927,000463,000464,000$ 265,000112,000153,000$ 406,000192,000SalesVariable manufacturing and selling expensesContribution marginFixed expenses:214,000Advertising, traceableDepreciation of special equipmentSalaries of product-line managersAllocated common fixed expenses*Total fixed expenses69,10043,500115,100185,400413,1008,70020,70040,90040,2007,20038,50081,20020,20015,60035,70053,000123,30051,200122,700167,100Net operating income (loss)$ 50,900$ 29,700$ 46,900$ (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 towhether or not the line should be discontinued. The special equipment used to produce racing bikes has no resale valueand 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 thelong-run profitability of the various product lines.

Answered: Image /qna-images/answer/7a779e10-c8f8-45f0-9ad9-e74758967ddd.jpg

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: Mountain Racing Bikes $ 256,000 159,000 97,000 Total Dirt Bikes Bikes $ 927,000 463,000 464,000 $ 265,000 112,000 153,000 $ 406,000 192,000 214,000 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 69,100 43,500 8,700 20,700 40,200 7,200 38,500 20,200 15,600 115,100 185,400 413,100 40,900 35,700 53,000 123,300 81,200 167,100 51,200 122,700 Net operating income (loss) $ 50,900 $ 29,700 $ 46,900 $ (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.

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter6: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 1PB: Classify costs Cromwell Furniture Company manufactures sofas for distribution to several major...