:Roan Bicycle Manufactures Mountain, BMX, and Hybrid bicycles. Sales and expense data for the past month follow:

	Total	Mountain Bicycle	BMX Bicycle	Hybrid Bicycle
Revenue	$ 880,000	$ 190,000	$430,000	$260,000
Variable expense	420,000	80,000	220,000	120,000
Contribution Margin	460,000	110,000	210,000	140,000
Fixed Expenses:
Advertising-traceable	168,000	55,000	60,000	53,000
Depreciation of special equipment	85,000	25,000	30,000	30,000
Line Supervisors salaries	68,000	28,000	24,000	16,000
General Administrative overhead*	99,000	32,000	45,000	22,000
Total Fixed expenses	420,000	140,000	159,000	121,000
Net Operating Income (loss)	40,000	(30,000)	51,000	19,000

* A common fixed cost that is allocated on the basis of sales dollars

Management is concerned about the continued losses shown by the round Mountain Bicycle and wants a recommendation as to whether or not the line should be discontinued. The special equipment used to produce the mountain bicycle has no resale value. If the mountain bicycle model is dropped, the two-line supervisors assigned to the model would be discharged.

REQUIREMENT

1. What is the financial advantage (disadvantage) of discontinuing the mountain bicycle? The company has no other use for the capacity now being used to produce the mountain bicycle. Show computations to support your answer.

2. Recast the above data in a format that would be more useful to management in assessing the profitability of the various product lines