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:

Total Dirt Bikes Mountain Bikes Racing Bikes

Sales $ $925,000$ $ $264,000$ $ $410,000$ $ $251,000$

Variable manufacturing and selling expenses $470,000111,000205,000154,000$

Contribution margin $455,000153,000205,00097,000$

Fixed expenses:

Advertising, traceable $69,5008,80040,50020,200$

Depreciation of special equipment $44,10020,4007,80015,900$

Salaries of product$-$line managers $115,30040,50038,90035,900$

Allocated common fixed expenses$*185,00052,80082,00050,200$

Total fixed expenses $413,900122,500169,200122,200$

Net operating income $($loss$)$ $ $41,100$ $ $30,500$ $ $35,800$ $ $(25,200)$

$*$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.

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.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:

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:

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

Should the production and sale of racing bikes be discontinued?

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.

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