bok int rences 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: 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) *Allocated on the basis of sales dollars. Total $ 928,000 461,000 467,000 70,500 44,300 115,600 185,600 416,000 $ 51,000 Dirt Bikes $ 266,000 111,000 155,000 8,800 20,500 40,300 53,200 122,800 $ 32,200 Mountain Bikes $ 404,000 195,000 209,000 41,000 7,989 38,600 30,800 168,300 $ 40,700 Racing Bikes $ 258,000 155,000 103,000 20,708 15,900 36,700 51,600 124,900 $ (21,900) 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.

The Regal Cycle Company marufactures three types of bicycles - a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: "Allocated on the basis of sales doliars. Management is concerned about the contunued 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 seqmented income statement that wouid be moce useful to managernent in assessing the long-run profitability of the various product lines