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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 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 Bikes Total Bikes Bikes Sales 925,000 268,000 401,000 256,000 Variable manufacturing and selling expenses 484,000 118.000 208,000 158,000 Contribution margin 441,000 150,000 193,000 98,000 Fixed expenses 69,300 8,300 40.600 20,400 43,600 20,300 7,700 15,600 114,900 40.300 38,600 36,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 185,000 53,600 80,200 51,200 Total fixed expenses 412,800 122,500 167,100 123,200 Net operating income (loss) 28,200 27,500 25,900 (25,200) *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
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