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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 919,000 $ 261,000 $ 404,000 $ 254,000 Variable manufacturing and selling expenses 461,000 113,000 195,000 153,000 Contribution margin 458,000 148,000 209,000 101,000 Fixed expenses: Advertising, traceable 69,600 8600 40300 20700 Depreciation of special equipment 43,600 20,200 7700 15700 Salaries of product-line managers 115,200 40,100 38800 36300 Allocated common fixed expenses* 183,000 52,200 80800 50800 Total fixed expenses 412,000 121,000 167600 123500 Net operating income (loss) $ 45,800 $ 26,900 $ 41400 $ (22,500) home / study / math / other math / other math questions and answers / the regal cycle company manufactures three types of bicycles�a dirt bike, a mountain bike, ... Question: The Regal Cycle Company manufactures three types of bicycles�a dirt bike, a mountain bike, and a ... (26 bookmarks) 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 $ 300,000 $ 90,000 $ 150,000 $ 60,000 Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000 Contribution margin 180,000 63,000 90,000 27,000 Fixed expenses: Advertising, traceable 30,000 10,000 14,000 6,000 Depreciation of special equipment 23,000 6,000 9,000 8,000 Salaries of product-line managers 35,000 12,000 13,000 10,000 Allocated common fixed expenses* 60,000 18,000 30,000 12,000 Total fixed expenses 148,000 46,000 66,000 36,000 Net operating income (loss) $ 32,000 $ 17,000 $ 24,000 $ (9,000) *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: 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.) 1b. Should production and sale of the racing bikes be discontinued? Yes No 2a. Prepare a segmented income statement. 2b. Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines.

Answer 1