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ONLY NEED HELP FOR NUMBER 1, THANKS. PLEASE EXPLAIN PROCESS. The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and
ONLY NEED HELP FOR NUMBER 1, THANKS. PLEASE EXPLAIN PROCESS.
The Regal Cycle Company manufactures three types of bicyclesa 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 $ 921,000 $262,800 $ 484,800 $ 255,000 469,000 118,000 193,000 158,000 452,000 144,000 211,000 97,000 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) 69,100 8,400 40,300 20,400 43,800 20,300 7,800 15,700 116,600 41,000 38,900 36,700 184,200 52,400 80,800 51,000 413,700 122, 100 167,800 123,800 $ 38,300 $ 21,900 $ 43,200 $(26,800) *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 linesStep by Step Solution
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