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Ede4ka [16]
3 years ago
5

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 $ 927,000 $ 264,000 $ 407,000 $ 256,000 Variable manufacturing and selling expenses 471,000 114,000 200,000 157,000 Contribution margin 456,000 150,000 207,000 99,000 Fixed expenses: Advertising, traceable 69,600 8,900 40,300 20,400 Depreciation of special equipment 43,900 20,700 7,300 15,900 Salaries of product-line managers 115,800 40,900 38,400 36,500 Allocated common fixed expenses* 185,400 52,800 81,400 51,200 Total fixed expenses 414,700 123,300 167,400 124,000 Net operating income (loss) $ 41,300 $ 26,700 $ 39,600 $ (25,000) *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.
Business
1 answer:
Cloud [144]3 years ago
7 0

Answer: (1) From the income statement it is clear that the racing bike cannot meet its fixed cost because it cannot provide a contribution towards meeting the fixed cost (2) it should be discontinued since it cannot provide a contribution towards meeting its fixed cost (3)A Dirk bike has a profit of $26,700, A mountain bike has a profit of $39,600, A racing bike has a loss of ($25,000) Total profit for the product line is $41,300

Explanation:

Income statement

Dirk bike mountain bike. Racing bike. Total

$ $ $ $

Sales. 264,000. 407,000 256,000 927,000

Less :Variablecost 114,000. 200,000 157,000. 471,000

----------- -------------- ------------- ------------

Contribution margin 150,000 207,000 99,000 456,000

Less: Fixed cost

Fixed Advertising. 8,900. 40,300. 20,400 69,600

Depreciation of equipment 20,700 7,300 15,900 43,900

Salary of product line manager 40,900. 38,400 36,500 115,800

Allocated common fixed expenses 52,800 81,400 51,200. 185,400

----------- ------------- ---------- -------------

Total Fixed Expenses 123,300 167,400. 124,000 414,700

Net operating income(loss) 26,700 39,600 (25,000) 41,300

(1) From the income statement it is clear that racing bike cannot meet its fixed cost because it cannot provide contribution towards meeting its fixed cost

(2) it should be discontinued since it cannot provide a contribution towards meeting its fixed cost

(3) A Dirk bike has a profit of $26,700, A mountain bike has a profit of $39,600, A racing bike has a loss of ($25,000) Total profit for the product line is $41,300

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Explanation:

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Suppose your company needs $14 million to build a new assembly line. your target debt-equity ratio is 0.84. the flotation cost for new equity is 9.5 percent, but the floatation cost for debt is only 2.5 percent. The amount required to build a new assembly line = is $ 14 million.

Equity represents the price that could be lower back to an agency's shareholders if all of the property has been liquidated and all of the business enterprise's debts were paid off. We also can consider equity as a diploma of residual possession in a company or asset after subtracting all debts related to that asset.

Equity is the possession of any asset after any liabilities associated with the asset are cleared. for example, in case you very own a vehicle well worth $25,000, but you owe $10,000 on that car, the car represents $15,000 fairness. it is the price or interest of the maximum junior magnificence of investors in assets.

In conclusion, stocks are referred to as equities because they constitute possession in organizations. They permit buyers advantage from boom but also have a chance while enterprise conditions weaken. In the subsequent time, we'll explore the variations between shares and bonds.

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Learn  more about equity here brainly.com/question/26507171

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