The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun

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: DirtMountain Racing Bikes Total Bikes Bikes Sales Variable manufacturing and 462,000 110,000 $932,000 $266,000 406,000 260,000 159,000 193,000 selling expenses Contribution margin Fixed expenses: 470,000 156,000 213,000 101,000 Advertising, traceable Depreciation of special 69, 300 8,600 40, 100 20, 600 43,200 20,200 7,800 15,200 35, 300 52,000 167,900 123, 100 s56,900 33,900 45,100 (22,100) equipment Salaries of product-line 114,200 40, 100 Allocated common fixed 186, 400 53,200 413,100 122,100 38,800 managers 81,200 . Total fixed expenses Net operating income (loss) 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

total if Difference racing bike Current are 1-a) total dropped Sales 932,000 672000 -260,000 Variable expenses 462,000 303000 159,000 contribution margin (loss) 470,000 369000 -101,000 fixed expenses Advertising,traceable 69,300 48700 20,600 Depreciation on special equipment 43,200 43,200 0 Salaries of product managers 114,200 78900 35,300 common allocated costs 186,400 186,400 0 total fixed expenses 413,100 357200 55,900 Net operating income(loss) 56,900 11800 -45,100 1-b) No 2a) Segmented Income statement Dirt mountain Racing total bikes bikes bikes sales 932,000 266,000 406,000 260,000 Variable manufacturing and selling expenses 462,000 110,000 193,000 159,000 contribution margin (loss) 470,000 156,000 213,000 101,000 traceable fixed expenses advertising 69,300 8,600 40,100 20,600 depreciation on special equipment 43,200 20,200 7,800 15,200 salaries of the product line managers 114,200 40,100 38,800 35,300 total traceable fixed expenses 226,700 68,900 86,700 71,100 product line segment margin 243,300 87,100 126,300 29,900 common fixed expenses 186,400 net operating income(loss) 56,900

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