help 1-3

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 Total Bikes Bikes Bikes 5 921,000 $264,000 $ 402,000 $ 255,000 473,000 119,000 202,000 152,000 448,000 145,000 200,000 103,000 Sales Variable manufacturing and selling expenses Contribution margin Pixed expenses Advertising, traceable Depreciation of special equipment salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (10) 69,800 8,400 40,500 20,900 43,200 20,300 7,200 15,700 115,600 40,100 38,900 36,600 184,200 52,800 80,400 51,000 412,800 121,600 167,000 124,200 $ 35,200 $ 23,400 33,000 $(21,200) "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