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 Biken Bikes $926,000 $267,000 $405,000 S 254,000 465,000 115,000 195,000 155,000 461,000 152,000 210,000 $9,000 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 (loss) 68,900 8,600 40,200 20,100 43,700 20,600 7,900 15,200 116,700 41,000 8,700 37.000 185,200 $3,400 81.000 50.800 414,500 123,600 167,300 123,100 $ 46,500 $ 28,400 $ 42,200 $(24,100) "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. Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An outside supplier has offered to sell one type of carburetor to Troy Engines, Ltd., for a cost of $35 per unit. To evaluate this offer, Troy Engines, Ltd., has gathered the following information relating to its own cost of producing the carburetor internally: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead, traceable Pixed manufacturing overhead, allocated Total cost 16,000 Units Per per Unit Year $ 13 $ 200,000 13 208,000 2 32,000 9 144,000 12192,000 $.49 $ 784,000 "One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value) Required: 1. Assuming the company has no alternative use for the facilities that are now being used to produce the carburetors, what would be the financial advantage (disadvantage) of buying 16,000 carburetors from the outside supplier? 2. Should the outside supplier's offer be accepted? 3. Suppose that if the carburetors were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $160,000 per year. Given this new assumption, what would be the financial advantage (disadvantage) of buying 16,000 carburetors from the outside supplier? 4. Given the new assumption in requirement 3, should the outside supplier's offer be accepted