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Exercise 11-2 (Algo) Dropping or Retaining a Segment (LO11-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a
Exercise 11-2 (Algo) Dropping or Retaining a Segment (LO11-2] 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: Total $ 924,000 461,000 463,000 Dirt Bikes $ 264,000 119,000 145,000 Mountain Bikes $ 404,000 190,000 214,000 Racing Bikes $ 256,000 152,000 104,000 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) 70,200 43,900 115,900 184,800 414,800 $ 48,200 8,700 20,900 40,900 52,800 123,300 $ 21,700 40,600 7,600 38,300 80,800 167,300 $ 46,700 20,900 15,400 36,700 51,200 124,200 $ (20, 200) *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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage (disadvantage) per quarter
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