Chapter 12 Hw Seved The Regal Cycle Company manufactures thr

Chapter 12 Hw Seved 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 pest quarter follow 0.83 points Dirt Hountain Racing Total BikesBikes Bikes $924,000 s269 ,000 $402,000 # 253,000 482,000 118,000 210,000 154,000 Variable masuacturing and sellisg 02:24 37 Contributien margin rixed expenses 42,000 151,005 1927.000-99,000 Advertising, traceable Depreclation of special equipment Salaries of product-line sanagers Allocated common fixed expenses 69,600,900 40,10020,600 43,600 20,600 7,100 15,900 114,200 40,20038,000 36,000 184 800O 53,800 80.400 0, 600 Total fixed expemses set opezating income (loss) 412 200 123 500 165,600123 100 29,800 27,500 26,400 $(24,100) Allocated on the basis of sales dollars s concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or not Management i the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not wear out References Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing 2. Should the production and sale of racing bikes be discontinued? a 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 Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 Whet is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2>

Solution

1. Financial disadvantage per quarter: $42400

2. No.

The production and sale of racing bikes should not be discontinued as it will result in a loss.

3.

	Current Total	Total If Racing Bikes Are Dropped	Difference: Financial advantage (disadvantage)
Sales	924000	671000	-253000
Variable manufacturing and selling expenses	482000	328000	154000
Contribution margin (loss)	442000	343000	-99000
Fixed expenses:
Advertising, traceable	69600	49000	20600
Depreciation on special equipment	43600	43600	0
Salaries of product-line managers	114200	78200	36000
Allocated common fixed expenses	184800	184800	0
Total fixed expenses	412200	355600	56600
Net operating income (loss)	29800	-12600	-42400