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Question - 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:
Total
Dirt Bikes
Mountain Bikes
Racing Bikes
Sales
$925,000
$269,000
$404,000
$252,000
Variable manufacturing and selling expenses
460,000
110,000
195,000
155,000
Contribution margin
465,000
159,000
209,000
97,000
Fixed expenses:
Advertising, traceable
69,300
8,500
40,600
20,200
Depreciation of special equipment
43,500
20,400
7,500
15,600
Salaries of product-line managers
114,800
40,800
38,500
35,500
Allocated common fixed expenses*
185,000
53,800
80,800
50,400
Total fixed expenses
412,600
123,500
167,400
121,700
Net operating income (loss)
$52,400
$35,500
$41,600
$(24,700)
*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.
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Prepare a retained earnings statement for the year and Prepare a stockholders' equity section of given case.
Prepare a master budget for the three-month period.
Construct the company's direct labor budget for the upcoming fiscal year, assuming that the direct labor workforce is adjusted each quarter to match the number of hours required to produce the forecasted number of units produced.
Evaluate the Predetermined Overhead Rate
Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.
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Prepare Company financial statements
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