The Regal Cycle Company manufactures three types of bicycles: a dirt bike, a mountain bike, and a racing bike.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. DirtMountainRacingTotalBikesBikesBikesSales$ 924,000 $266,000 $ 408,000 $ 250,000Variable manufacturing and selling475,000112,000210,000153,000expensesContribution marginFixed expenses:Advertising, traceableDepreciation of special equipmentSalaries of product-line managers449,000154,000198,00097,00069,00043,200115,800184,80020,40015,70036,90050,000123,000$ 36,200 $ 31,500 $ 30,700 $ (26,000)8,20020,30040,80053,200122,50040,4007,20038,10081,600Allocated common fixed expenses*Total fixed expenses412,800167,300Net operating income (loss) TotalsDirt BikesMountain Bikes Racing BikesSalesVariable manufacturing and selling expensesContribution margin (loss)Traceable fixed expenses:Advertising, traceableDepreciation of special equipmentSalaries of the product line managersTotal traceable fixed expensesProduct line segment margin (loss)0 $0 $Common fixed expensesNet operating income (loss)$%24%24

Income statement: Under this Statement showing the company’s performance over a period of time by…

Totals Dirt Bikes Mountain Bikes Racing Bikes Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) 0 $ 이 $ olo %24

Totals Dirt Bikes Mountain Bikes Racing Bikes Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) 0 $ 이 $ olo %24

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter27: Lean Manufacturing And Activity Analysis

Section: Chapter Questions

Problem 18E: Cost of quality and value-added/non-value-added reports for a service company A. Using the...

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Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $1,280 $185 $360 $1,825 Less: Variable expenses 1,115 45 288 1,448 Contribution margin $165 $140 $72 $377 Less direct fixed expenses: Depreciation 50 15 12 77 Salaries 95 85 84 264 Segment margin $20 $40 $(24) $36 Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would be eliminated if the associated product were dropped. Required: Conceptual Connection: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example,…
Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $1,280 $185 $405 $1,870 Less: Variable expenses 1,115 45 324 1,484 Contribution margin $165 $140 $81 $386 Less direct fixed expenses: Depreciation 50 15 12 77 Salaries 95 85 92 272 Segment margin $20 $40 $(23) $37 Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped. Required: CONCEPTUAL CONNECTION: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000"…
The contribution margin income statementa. reports expenses based on cost behavior pattern rather than cost function.b. unitizes fixed costs.c. shows contribution margin rather than operating income as the bottom line.d. is sometimes used for financial reporting purposes.e. none of the above.Use the following information for Questions 9 and 10.O’Brien, Inc.’s, 2013 contribution margin income statement shows thefollowing:Sales @ $10 per unit . . . . . . . . . . . . . $ 160,000Less: Variable expense . . . . . . . . . . . (128,000)Contribution margin. . . . . . . . . . . . . . $ 32,000Less: Fixed expenses . . . . . . . . . . . . (44,000)Operating income (loss) . . . . . . . . . . . $ (12,000)
Keep-or-Drop Decision Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Alanson Boyne Conway Total Sales revenue $1,280 $185 $360 $1,825 Less: Variable expenses 1,115 45 252 1,412 Contribution margin $165 $140 $108 $413 Less direct fixed expenses: Depreciation 50 15 13 78 Salaries 95 85 120 300 Segment margin $20 $40 $(25) $35 Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that each of the three products has a different supervisor whose position would remain if the associated product were dropped. Required: CONCEPTUAL CONNECTION: Estimate the impact on profit that would result from dropping Conway. Enter amount in full, rather than in thousands. For example, "15000"…
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Keep-or-Drop Decision Charlevoix Company produces three products: Torch, Elk, and Walloon. A segmented income statement, with amounts given in thousands, follows: Line Item Description Torch Elk Walloon Total Sales revenue $1,280 $185 $315 $1,780 Less: Variable expenses 1,115 45 252 1,412 Contribution margin $165 $140 $63 $368 Less direct fixed expenses: Depreciation 50 15 10 75 Advertising 95 85 76 256 Segment margin $20 $40 $(23) $37 Direct fixed expenses consist of depreciation and advertising. All depreciation on the equipment is dedicated to the product lines. None of the equipment can be sold. Assume that, each of the three products has a different marketing campaign whose advertising would be eliminated if the associated product were dropped. Assume that 30% of the Torch customers choose to buy from Charlevoix because it offers a full range of products, including Walloon. If Walloon were no longer available from Charlevoix, these customers…
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Instructions: Designate whether each of the following statements is true or false by circling the T or F. TF 1.Contribution margin is the amount of revenue left over to cover selling and administrative costs after manufacturing costs have been deducted. TF 2.The margin of safety is the difference between actual profit and target net income. TF 3. At the break-even point, total contribution margin is equal to total fixed costs. TF 4.A company’s break-even point can be decreased by increasing the contribution margin ratio. TF 5.A CVP income statement classifies costs by function, but a traditional income statement classifies costs by cost behavior (variable or fixed).
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