Reference no: EM132561980
Dropping or Retaining a Segment
The Regal Cycle Company manufacturers 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: $300,000 $90,000 $150,000 $60,000
Variable Manufacturing
and selling expenses 120,000 270,00 60,000 33,000
Contribution Margin 180,000 63,000 90,000 27,000
Fixed Expenses:
Advertising, Traceable 30,000 10,000 14,000 6,000
Depreciation of special
equipment 23,000 6,000 9,000 8,000
Salaries of product- line
managers 35,000 12,000 13,000 10,000
Allocated Common fixeds
expenses 60,000 18,000 30,000 12,000
Total Fixed Expenses 148,000 46,000 66,000 36,000
Net Operating Income (Loss) $32,000 $17,000 $24,000 ($9,000)
Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to weather or not the line should be discounted. The special equipment used to produce racing bikes has no resale value and does not wear out.
Question 1: Should production and sale of the racing bikes be discontinued? Explain. Show computations to support my answer.
Question 2: Recast the above data in a format that would be more unable to management in assessing the long- run profitability of the various product lines.
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