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 Bikes Racing Bikes Dirt Bikes $ 264,000 117,000 147,000 Total $ 925,000 466,000 459,000 $ 403,000 191,000 212,000 $ 258,000 158,000 100,000 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 40,700 7,200 38,800 80,600 20,600 15,200 8,700 70,000 42,900 20,500 40,500 52,800 122,500 $ 24,500 35,500 51,600 122,900 114,800 185,000 412,700 |167,300 $ 46,300 $ 44,700 $ (22,900) 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: Mountain Bikes Racing Bikes Dirt Bikes $ 264,000 117,000 147,000 Total $ 925,000 466,000 459,000 $ 403,000 191,000 212,000 $ 258,000 158,000 100,000 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 40,700 7,200 38,800 80,600 20,600 15,200 8,700 70,000 42,900 20,500 40,500 52,800 122,500 $ 24,500 35,500 51,600 122,900 114,800 185,000 412,700 |167,300 $ 46,300 $ 44,700 $ (22,900) 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.
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter2: Financial Statements, Cash Flow,and Taxes
Section: Chapter Questions
Problem 20SP: Begin with the partial model in the file Ch02 P20 Build a Model.xlsx on the textbook’s Web...
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sp 2022 G
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
Total
Dirt Bikes
Bikes
$ 925,000
466,000
459,000
$ 264,000
117,000
147,000
$ 403,000
191,000
212,000
$ 258,000
158,000
100,000
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
70,000
42,900
114,800
185,000
412,700
8,700
20,500
40,500
52,800
122,500
40,700
7,200
38,800
80,600
167,300
20,600
15,200
35,500
51,600
122,900
$ (22,900)
Net operating income (loss)
$ 46,300
$ 24,500
$ 44,700
*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
What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
Financial advantage (disadvantage) per quarter
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