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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 Bikes Racing Bikes Total Mountain Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $ 90,000 $60,000 $ 300,000 120,000 180,000 27,000 63,000 150,000 60,000 90,000 33,000 27,000 14,000 9,000 13,000 30,000 66,000 S 24,000 Advertising, traceable 30,000 23,000 35,000 60,000 148,000 $32,000 10,000 6,000 12,000 18,000 46,000 6,000 8,000 10,000 12,000 36,000 (9,000 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses S 17,000 Net operating income (loss) 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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