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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: Dirt Bikes Mountain Bikes $ 933,000 $267,000 $ 407,000 $ 259,000 190,000 Racing Bikes Total 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 455,000 478,000 113,000 152,000 154,000 217,000 107,000 69,800 43,000 114,100 186,600 413,500 40,500 7,200 8,700 20,600 40,100 53,400 20,600 15, 200 35,500 51,800 38,500 81,400 122,800 167,600 123,100 Net operating income (loss) $64,500 $ 31,200 $ 49,400 $(16,100) *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.

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: Dirt Bikes Mountain Bikes $ 933,000 $267,000 $ 407,000 $ 259,000 190,000 Racing Bikes Total 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 455,000 478,000 113,000 152,000 154,000 217,000 107,000 69,800 43,000 114,100 186,600 413,500 40,500 7,200 8,700 20,600 40,100 53,400 20,600 15, 200 35,500 51,800 38,500 81,400 122,800 167,600 123,100 Net operating income (loss) $64,500 $ 31,200 $ 49,400 $(16,100) *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.

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter6: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 1PB: Classify costs Cromwell Furniture Company manufactures sofas for distribution to several major...
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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: Dirt Bikes Mountain Bikes $ 933,000 $267,000 $ 407,000 $ 259,000 190,000 Racing Bikes Total 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 455,000 478,000 113,000 152,000 154,000 217,000 107,000 69,800 43,000 114,100 186,600 413,500 40,500 7,200 8,700 20,600 40,100 53,400 20,600 15, 200 35,500 51,800 38,500 81,400 122,800 167,600 123,100 Net operating income (loss) $64,500 $ 31,200 $ 49,400 $(16,100) *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.
Transcribed Image Text: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: Dirt Bikes Mountain Bikes $ 933,000 $267,000 $ 407,000 $ 259,000 190,000 Racing Bikes Total 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 455,000 478,000 113,000 152,000 154,000 217,000 107,000 69,800 43,000 114,100 186,600 413,500 40,500 7,200 8,700 20,600 40,100 53,400 20,600 15, 200 35,500 51,800 38,500 81,400 122,800 167,600 123,100 Net operating income (loss) $64,500 $ 31,200 $ 49,400 $(16,100) *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.
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