value 16.67 points Exercise 10-2 Dropping or Retaining a Segment [LO10-2] The Re
ID: 2394667 • Letter: V
Question
value 16.67 points Exercise 10-2 Dropping or Retaining a Segment [LO10-2] 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 Mountain Racing Bikes $ 925,000$ 261,000 $ 407,000 $257,000 Variable manufacturing and selling expenses 464,000 114,000 193,000 157,000 TotalBikesBikes Sales Contribution margin 461,000 147,000214,000 100,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 8,800 40,300 20,100 15,200 114,90040,100 38,200 36,600 185,000 52,200 81,400 51,400 69.200 43,20020,600 7,400 Total fixed expenses 412,300 121.700 167,300 123.300 Net operating income (loss) S 48,700 S 25,300 46,700 $ (23,300) 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
2a) Segmented Income Statement (Amounts in $)
2b) Yes, segmented income statement format will be more usable to management in assesing the long run profitability of the various product lines because it shows product margin of all products seperately.
Particulars Totals Dirt Bikes Mountain Bikes Racing Bikes Sales 925,000 261,000 407,000 257,000 Less: Variable manufacturing and selling expenses (464,000) (114,000) (193,000) (157,000) Contribution Margin (loss) (A) 461,000 147,000 214,000 100,000 Traceable fixed expenses: Advertising 69,200 8,800 40,300 20,100 Depreciation of special equipment 43,200 20,600 7,400 15,200 Salaries of product line managers 114,900 40,100 38,200 36,600 Total traceable fixed expenses (B) 227,300 69,500 85,900 71,900 Product line segment margin (A - B) 233,700 77,500 128,100 28,100 Less: Common fixed expenses 185,000 Net Operating Income (loss) 48,700Related Questions
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