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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 923,000 $ 266,000 $ 404,000 $ 253,000 Variable manufacturing and selling expenses 482,000 120,000 203,000 159,000 Contribution margin 441,000 146,000 201,000 94,000 Fixed expenses: Advertising, traceable 69,400 8,300 41,000 20,100 Depreciation of special equipment 44,000 20,400 7,800 15,800 Salaries of product-line managers 114,200 40,500 38,600 35,100 Allocated common fixed expenses* 184,600 53,200 80,800 50,600 Total fixed expenses 412,200 122,400 168,200 121,600 Net operating income (loss) $ 28,800 $ 23,600 $ 32,800 $ (27,600) *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.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 2PA: A company manufactures and sells racing bicycles to specialty retailers. The Bomber model sells for...

See similar textbooks

Related questions

Question

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:

	Total	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales	$	923,000		$	266,000	$	404,000	$	253,000
Variable manufacturing and selling expenses		482,000			120,000		203,000		159,000
Contribution margin		441,000			146,000		201,000		94,000
Fixed expenses:
Advertising, traceable		69,400			8,300		41,000		20,100
Depreciation of special equipment		44,000			20,400		7,800		15,800
Salaries of product-line managers		114,200			40,500		38,600		35,100
Allocated common fixed expenses*		184,600			53,200		80,800		50,600
Total fixed expenses		412,200			122,400		168,200		121,600
Net operating income (loss)	$	28,800		$	23,600	$	32,800	$	(27,600)

*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

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

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