The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun
ID: 2340871 • Letter: T
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 $ 923,000 $264,000 $ 404,000 255,000 Variable manufacturing and selling expenses 472,000 114,000198,000 160,00 206,00095,000 Sales Contribution margin Fixed expenses: 451,000150,900 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,400 42,700 20, 300 115,700 40,600 184,600 52,800 40,200 7,100 38,900 69,200 20,600 15,300 36, 200 80,800 51,000 122.100 167,000 123Lee Total fixed expenses Net operating income (loss) 123,100 $ 38,800 27,900 $ 39,000 $(28,100) 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.Explanation / Answer
Answer:
1
Current
Total
Total if racing bike is dropped
Diffrance
Sales
923000
668,000
-255,000
Variable manufacturing and selling expenses
472000
312,000
160,000
Contribution margin
451000
356000
-95,000
Fixed expenses:
Advertising, traceable
69200
48,600
20,600
Depreciation of special equipment
42700
42,700
0
Salaries of product-line managers
115700
79,500
36,200
Allocated common fixed expenses*
184600
184,600
0
Total fixed expenses
412200
355400
56,800
Net operating income (loss)
38800
600
-38,200
2
Should production and sale of the racing bikes be discontinued?
Answers: NO
3
Prepare a segmented income statement.
Segmented income statement
Total
Dirt
Mountain
Racing
Bikes
Bikes
Bikes
Sales
923,000
264,000
404000
255,000
Variable manufacturing and selling expenses
472,000
114,000
198000
160,000
Contribution margin
451,000
150,000
206,000
95,000
Fixed expenses:
Advertising, traceable
69,200
8,400
40200
20,600
Depreciation of special equipment
42,700
20,300
7100
15,300
Salaries of product-line managers
115,700
40,600
38900
36,200
Total Tracable Fixed cost
227,600
69,300
86,200
72,100
Product lie segment Margin
223,400
80,700
119,800
22,900
Common fixed cost
184600
Net operating income (loss)
38,800
Yes,segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines.
Current
Total
Total if racing bike is dropped
Diffrance
Sales
923000
668,000
-255,000
Variable manufacturing and selling expenses
472000
312,000
160,000
Contribution margin
451000
356000
-95,000
Fixed expenses:
Advertising, traceable
69200
48,600
20,600
Depreciation of special equipment
42700
42,700
0
Salaries of product-line managers
115700
79,500
36,200
Allocated common fixed expenses*
184600
184,600
0
Total fixed expenses
412200
355400
56,800
Net operating income (loss)
38800
600
-38,200
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