Please answer all three parts since theyre all one question. The Regal Cycle Com
ID: 2598328 • Letter: P
Question
Please answer all three parts since theyre all one question.
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 Racing Bikes Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $. 916,000 $261,000 $. 402,000 $. 253,000 466,000 450,000 146,000 115,000 195,000 207,000 156,000 97,000 400 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 40,400 7,700 38,100 80,400 166,600 70,000 8,900 20,700 15,900 35,900 44,000 20,400 114,500 40,500 183,200 411,700 122,000 52,200 Total fixed expenses Net operating income (loss) 123,100 $ 38,300 24,000 $ 40,400 $(26,100) 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 Complete this question by entering your answers in the tabs below Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?Explanation / Answer
1. The financial disadvantage = $24,500
Working:
2.
No. the production of racing bikes should not be stopped.
3.
Income statement without racing bikes: Total Dirt Mountain bikes bikes Sales 663000 261000 402000 Variable costs 310000 115000 195000 353000 146000 207000 Traceable fixed costs: Advertising 49300 8900 40400 Depreciation, special equipment 28100 20400 7700 Salaries of product-line managers 78600 40500 38100 Total traceable fixed costs 156000 69800 86200 Segment net income 197000 76200 120800 Common fixed expenses 183200 72119 111081 Net operating income 13800 Net operating income with racing 38300 Net operating income without racing 13800 Financial disadvantage 24500