80.2K

Verified Solution

Link Copied!

The Regal Cycle Company manufactures three types of bicyclesa 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 $ 928,000 $ 269,000 $ 402,000 $ 257,000 Variable manufacturing and selling expenses 477,000 117,000 209,000 151,000 Contribution margin 451,000 152,000 193,000 106,000 Fixed expenses: Advertising, traceable 69,100 8,800 40,200 20,100 Depreciation of special equipment 44,100 20,800 7,500 15,800 Salaries of product-line managers 114,600 40,900 38,200 35,500 Allocated common fixed expenses* 185,600 53,800 80,400 51,400 Total fixed expenses 413,400 124,300 166,300 122,800 Net operating income (loss) $ 37,600 $ 27,700 $ 26,700 $ (16,800) *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.

Answer & Explanation Solved by verified expert

See Answer