Chapter 7, Problem 7.2E

To determine

Concept Introduction:

Differential analysis:

Differential analysis is an accounting technique that is used to analyze the change in the revenue and cost of the business resulting from some specific decision making. It analyses the cost of accepting one business offer over other business offers.

Requirement 1:

Calculate the financial effect per quarter for discontinuing the Racing Bikes.

To determine

Concept introduction:

Dropping a Product line

When the overall profit of the business increases by dropping a product line, the business should drop a product line even if the product line is making a profit. A product line is also dropped when it is no longer required due to the technology change or change in the product requirement.

Requirement 2:

Determine whether the production and sale of the racing bikes should be discontinued or not.

To determine

Concept introduction:

Income statement:

The income statement tells about the revenues earned and expenses incurred by the company in a specific period of time. It is also known as operations statement, earnings statement, revenue statement or profit, and loss statement.

Requirement 3:

Prepare a segmented income statement for Company R.