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 Bikes Racing Bikes Mountain Bikes $ 931,000 $ 269,000 $ 407,000 $ 255,000 192,000 215,000 Total 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 466,000 465,000 116,000 153,000 158,000 97,000 69,900 43,400 115,500 186,200 415,000 $ 50,000 $ 29,700 $ 46,800 $(26, 500) 8,700 20,300 40,500 53,800 123,300 40,900 7,200 38,700 81,400 168, 200 20, 300 15,900 36,300 51,000 123,500 Net operating income (loss) "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.
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 Bikes Racing Bikes Mountain Bikes $ 931,000 $ 269,000 $ 407,000 $ 255,000 192,000 215,000 Total 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 466,000 465,000 116,000 153,000 158,000 97,000 69,900 43,400 115,500 186,200 415,000 $ 50,000 $ 29,700 $ 46,800 $(26, 500) 8,700 20,300 40,500 53,800 123,300 40,900 7,200 38,700 81,400 168, 200 20, 300 15,900 36,300 51,000 123,500 Net operating income (loss) "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.
Managerial Accounting
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...
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1. What is the financial advantage per quarter of discontinuing the Racing bikes?
3. Prepare a properly formatted segment income statement that would be more useful to management in assessing the long-run profitability of the various product lines.
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