question archive The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike
The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike
Subject:AccountingPrice: Bought3
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 |
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| Sales | $ | 928,000 | $ | 268,000 | $ | 409,000 | $ | 251,000 | ||||
| Variable manufacturing and selling expenses | 468,000 | 114,000 | 197,000 | 157,000 | ||||||||
| Contribution margin | 460,000 | 154,000 | 212,000 | 94,000 | ||||||||
| Fixed expenses: | ||||||||||||
| Advertising, traceable | 69,700 | 8,800 | 40,500 | 20,400 | ||||||||
| Depreciation of special equipment | 43,000 | 20,500 | 7,400 | 15,100 | ||||||||
| Salaries of product-line managers | 114,600 | 40,800 | 38,400 | 35,400 | ||||||||
| Allocated common fixed expenses* | 185,600 | 53,600 | 81,800 | 50,200 | ||||||||
| Total fixed expenses | 412,900 | 123,700 | 168,100 | 121,100 | ||||||||
| Net operating income (loss) | $ | 47,100 | $ | 30,300 | $ | 43,900 | $ | (27,100) | ||||
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*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.
