Question 1 (of 4) value: 4.50 points The Regal Cycle Company manufactures three

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Question 1 (of 4) value: 4.50 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 Dirt Mountain Bikes Bikes Total Bikes $ 929,000 S 268,000 $ 401,000 $260,000 Variable manufacturing and selling expenses 477,000 18,000 205,000 54,000 Sales Contribution margin 452,000150,000196,000 106000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-ine managers Allocated common fixed expenses 70,0008,80040,900 43,90020,400 15,300 40.700 38,200 20,300 7.60015,900 40 70038,20036,400 Total fixed expenses Net operating income (loss) 85.80053,60080,200 52,000 15.000123 500166 900 124,600 s 37,000 26.500 S 29,100 S (18,600) Allocated on the basis of sales dollars Management is concened about the continued losses shown by the racing bikes and wants a 144

Explanation / Answer

1. Contribution margin if the business of racing bike discounitue

Fixed expenses includes only advertimsent and the salaries.

1 (b). No this business should not be discountinue.

2.

3.Yes, the segment reporting is more suitable for the management as its shows the profitibilty of the company with each product line so that management of the company may decide which product line are generating more revenues towards achieving the firms goals.

Particular Current Total If the racing bikes discounitnue Net operating income Contribution Margin 452000 (106000) 346000 Fixed Expenes 185300 (56700) 128600 Net Operating income 266700 (162700) 104000

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