1.

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: Dirt Mountain Racing B kes Total B kes Bikes $926,000 268,000 $ 403,000 $ 255,000 469,000 15,000 99,000 155,000 100,000 Sales Variable manuf acturing and selling expenses Contribut ion margin Fixed expenses: 457,000 153,000 204,000 8,900 43,400 20,500 115,100 40,300 185,200 53,600 413,200123,300 20,500 15,800 36,500 51,000 123,800 $43,800 29,700 $37,900 $ (23,800) Advert i s ng , t raceabl e Depreciat ion of special equipment Salaries of product-l ine managers Al located common fixed expenses* 69,500 40,100 7,100 38,300 80,600 66,100 Total fixed expenses Net operat ing income (loss) 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. Requirec: 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. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? inancial (disadvantage) per quarter 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 Totals Dirt Bikes Mountain Bikes Racing Bikes Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) 0 0