80.2K

Verified Solution

Link Copied!

Exercise 6-2 (Algo) Dropping or Retaining a Segment (LO6-2] 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: 04 Dirt Mountain Racing Total Bikes Bikes Bikes $930,000 $269,000 $ 407,000 $ 254,000 466,000 111,000 196,000 159,000 464,000 158,000 211,000 95,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) 70,300 8,400 41,000 20,900 44,000 20,900 7,900 15,200 115,000 40,900 38,400 35, 700 186,000 53,800 81,400 50.800 415,300 124,000 168,700 122,600 $ 48,700 $ 34,000 $ 42,300 $(27,600) 1 nces *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. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Regu Required 2 >

Answer & Explanation Solved by verified expert

See Answer