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) "Allocated on the basis of sales dollars. Total $ 926,000 461,000 465,000 Dirt Bikes $ 268,000 114,000 154,000 Mountain Bikes $ 406,000 190,000 Racing Bikes $ 252,000 157,000 216,000 95,000 69,400 8,100 40,400 20,900 43,000 20,200 7,400 15,400 115,100 40,800 38,100 36,200 185,200 53,600 81,200 50,400 412,700 122,700 167,100 122,900 $ 52,300 $ 31,300 $ 48,900 $ (27,900) Management is considering discontinuing the racing bikes. 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?
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) "Allocated on the basis of sales dollars. Total $ 926,000 461,000 465,000 Dirt Bikes $ 268,000 114,000 154,000 Mountain Bikes $ 406,000 190,000 Racing Bikes $ 252,000 157,000 216,000 95,000 69,400 8,100 40,400 20,900 43,000 20,200 7,400 15,400 115,100 40,800 38,100 36,200 185,200 53,600 81,200 50,400 412,700 122,700 167,100 122,900 $ 52,300 $ 31,300 $ 48,900 $ (27,900) Management is considering discontinuing the racing bikes. 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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)
"Allocated on the basis of sales dollars.
Total
$ 926,000
Dirt Bikes
461,000
465,000
$ 268,000
114,000
154,000
Mountain
Bikes
$ 406,000
190,000
Racing Bikes
$ 252,000
157,000
216,000
95,000
69,400
8,100
40,400
20,900
43,000
20,200
7,400
15,400
115,100
40,800
38,100
36,200
185,200
53,600
81,200
50,400
412,700
122,700
167,100
122,900
$ 52,300
$ 31,300
$ 48,900
$ (27,900)
Management is considering discontinuing the racing bikes. 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?
Complete this question by entering your answers in the tabs below.
Required 1
Required 2
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Required 1
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