- Required 1 Required 2 Required 3 Prepare A Properly Formatted Segmented Income Statement That Would Be More Useful To Ma 1 (20.91 KiB) Viewed 38 times
Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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: Racing Bikes Total $ 912,000 Dirt Bikes $ 261,000 Mountain Bikes $ 401,000 210,000 Sales $ 250,000 Variable manufacturing and selling expenses 478,000 115,000 146,000 153,000 97,000 434,000 191,000 Contribution margin Fixed expenses: Advertising, traceable 69,500 8,800 40,500 20, 200 Depreciation of special equipment 44,300 20,900 7,800 15,600 115,100 40,700 38,900 35,500 Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 182,400 52, 200 50,000 80, 200 167,400 411,300 122,600 121,300 Net operating income (loss) $ 22,700 $ 23,400 $ 23,600 $ (24,300) *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.