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Imperial Jewelers manufactures and sells a gold bracelet for $404.00. The companys accounting system says that the unit product cost for this bracelet is $259.00 as shown below:

Direct materials	$ 141
Direct labor	85
Manufacturing overhead	33
Unit product cost	$ 259

The members of a wedding party have approached Imperial Jewelers about buying 16 of these gold bracelets for the discounted price of $364.00 each. The members of the wedding party would like special filigree applied to the bracelets that would increase the direct materials cost per bracelet by $9. Imperial Jewelers would also have to buy a special tool for $461 to apply the filigree to the bracelets. The special tool would have no other use once the special order is completed.

To analyze this special order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However, $10.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell jewelry to other customers. Furthermore, the company could fulfill the wedding partys order using its existing manufacturing capacity.

Required:

1. What is the financial advantage (disadvantage) of accepting the special order from the wedding party?

2. Should the company accept the special order?

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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:

	Total	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales	$ 925,000	$ 268,000	$ 404,000	$ 253,000
Variable manufacturing and selling expenses	463,000	120,000	191,000	152,000
Contribution margin	462,000	148,000	213,000	101,000
Fixed expenses:
Advertising, traceable	69,500	8,300	40,700	20,500
Depreciation of special equipment	43,700	20,500	7,700	15,500
Salaries of product-line managers	115,000	41,000	38,200	35,800
Allocated common fixed expenses*	185,000	53,600	80,800	50,600
Total fixed expenses	413,200	123,400	167,400	122,400
Net operating income (loss)	$ 48,800	$ 24,600	$ 45,600	$ (21,400)

*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.