The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales

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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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 920,000 $ 267,000 $ 401,000 $ 252,000 Variable manufacturing and selling expenses 464,000 118,000 191,000 155,000 Contribution margin 456,000 149,000 210,000 97,000 Fixed expenses: Advertising, traceable 69,600 8,600 40,200 20,800 Depreciation of special equipment 44,300 20,900 7,800 15,600 Salaries of product-line managers 114,100 40,000 38,300 35,800 Allocated common fixed expenses* 184,000 53,400 80,200 50,400 Total fixed expenses 412,000 122,900 166,500 122,600 Net operating income (loss) $ 44,000 $ 26,100 $ 43,500 $ (25,600) *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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