The regal cycle company manufactures three

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4. Award: 10.00 points

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 $ 924,000 $ 265,000 $ 403,000 $ 256,000 Variable manufacturing and selling expenses 457,000 112,000 194,000 151,000 Contribution margin 467,000 153,000 209,000 105,000 Fixed expenses:

Advertising, traceable 69,600 8,800 40,700 20,100 Depreciation of special equipment 43,800 20,600 7,700 15,500 Salaries of product-line managers 114,100 40,900 38,100 35,100 Allocated common fixed expenses* 184,800 53,000 80,600 51,200

Total fixed expenses 412,300 123,300 167,100 121,900 Net operating income (loss) $ 54,700 $ 29,700 $ 41,900 $ (16,900)

*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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 Required 2 Required 3 

Complete this question by entering your answers in the tabs below.

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.

Required 1 Required 2 Required 3

Totals Dirt Bikes Mountain Bikes Racing Bikes

Contribution margin (loss)

Traceable fixed expenses:

Total traceable fixed expenses

Product line segment margin (loss)

Net operating income (loss)

0 0 0 0

0 0 0 0

0 $ 0 $ 0 $ 0

$ 0

References

Worksheet Difficulty: 1 Easy Learning Objective: 11-02 Prepare an analysis showing whether a product line or other business segment should be added or dropped.