ACCTG 1

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 $ 927,000 471,000 456,000 Dirt Bikes $ 265,000 115,000 150,000 Mountain Bikes $ 409,000 203,000 206,000 Racing Bikes $ 253,000 153,000 100,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 69,300 43, 100 114,200 185,400 412,000 $ 44,000 8, 200 20,100 40,300 53,000 121,600 $ 28,400 40,500 7,700 38,100 81,800 168, 100 $ 37,900 20,600 15,300 35,800 50,600 122,300 $ (22,300) *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