9 newconnect.mheducation.com ney Apple Bing Google Yahoo Soundcloud Apple Your s

Question

9 newconnect.mheducation.com ney Apple Bing Google Yahoo Soundcloud Apple Your stream on SoundCloud Twitter ESPN Instagram Dis Connect Saved Help Save & Exit Submit Chapter 12 Homework Assignment Check my work 2 Exercise 12-2 Dropping or Retaining a Segment [LO12-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike. and a racing bike. Data on 2.5 points sales and expenses for the past quarter follow: Dirt Mountain Racing Bikes Total Bikes Bikes Sales Variable manufacturing and selling $921,000 $263,000 $400,000 258,000 469,000 111,000 199,000 159,000 eBook Hint expenses Contribution margin Pixed expenses: 452,000 152,000 201,000 99,000 Print Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 69,200 8,300 40,800 20,100 7,600 15,700 36,400 References 43,400 20,100 115,700 40,500 38,800 184,200 52,600 80, 000 Total fixed expenses Net operating income (loss) 412,500 121,500 167,200 123 800 $ 39,500 $ 30,500 33,800 (24,800) 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 an does not wear out. Required 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the oroduction and sale of racina bikes be discontinued?

Explanation / Answer

The Regal Cycle Company 1) What is the financial advantage(disadvantage )per Quarter of discontinuing the Racing Bikes Lost Contribution Margin $ (99,000.00) Saving of fixed expenses Advertising-Traceable $    20,100.00 Salaries of product line manager $    36,400.00 Decrease in net operating income $ (42,500.00) Note: Fixed cost are of two types Traceable A traceable fixed cost is related to existence of a particular segment, if a particular segment is close down the fixed cost would not have been incurred. Common Cost A common cost relates to more than one segment.Common cost cannot be avoided if any segment close down. Depreciation of special equipment is a sunk cost so irrelevant for decision. Sunk cost are those cost which is already incurred. 2) No the production and sale of racing bikes should not be discontinue because it will result operating income of company as a whole would decrease by $42500 3) Properly formatted segmented income statement Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 921,000.00 $    263,000.00 $       400,000.00 $    258,000.00 Variable Cost $ 469,000.00 $    111,000.00 $       199,000.00 $    159,000.00 Contribution Margin $ 452,000.00 $    152,000.00 $       201,000.00 $      99,000.00 Less: Traceable Fixed Cost Advertising $    69,200.00 $         8,300.00 $         40,800.00 $      20,100.00 Depreciation of special equipment $    43,400.00 $      20,100.00 $            7,600.00 $      15,700.00 Salaries of product line manager $ 115,700.00 $      40,500.00 $         38,800.00 $      36,400.00 Total Traceable fixed expenses $ 228,300.00 $      68,900.00 $         87,200.00 $      72,200.00 Product line segment margin $ 223,700.00 $      83,100.00 $       113,800.00 $      26,800.00 Less: Common fixed expenses $ 184,200.00 Operating Income= $    39,500.00

Related Questions

Navigate

• Browse (All)
• Browse 9
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.