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:BusinessPrice: 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 $ 926,000 471,000 455,000 Racing Bikes $ 254,000 151,000 103,000 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 Net operating income (loss) 69,200 43,000 114,200 185,200 411,600 $ 43,400 Mountain Dirt Bikes Bikes $ 265,000 $ 407,000 113,000 207,000 152,000 200,000 8,100 40,900 20,300 7.100 40,200 38,600 53,000 81,400 121,600 168,000 $ 30,400 $ 32,000 20,200 15,600 35,400 50.800 122,000 $ (19,680) *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.
