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: 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) *Allocated on the basis of sales dollars. Total Dirt Bikes $ 922,000 483,000 439,000 $ 263,000 119,000 144,000 Mountain Bikes $ 406,000 208,000 Racing Bikes $ 253,000 156,000 198,000 97,000 70,100 8,900 40,400 20,800 44,200 21,000 7,300 15,900 115,500 40,900 38,300 36,300 184,400 52,600 81,200 50,600 414,200 123,400 167,200 123,600 $ 24,800 $ 20,600 $ 30,800 $ (26,600) Management is considering discontinuing the racing bikes. 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?
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: 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) *Allocated on the basis of sales dollars. Total Dirt Bikes $ 922,000 483,000 439,000 $ 263,000 119,000 144,000 Mountain Bikes $ 406,000 208,000 Racing Bikes $ 253,000 156,000 198,000 97,000 70,100 8,900 40,400 20,800 44,200 21,000 7,300 15,900 115,500 40,900 38,300 36,300 184,400 52,600 81,200 50,600 414,200 123,400 167,200 123,600 $ 24,800 $ 20,600 $ 30,800 $ (26,600) Management is considering discontinuing the racing bikes. 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?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter11: Differential Analysis And Product Pricing
Section: Chapter Questions
Problem 16E
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