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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
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 Bikes Bikes $ 919,000 $263,000 $ 405,000 $ 251,000 478,000 118,000 204,000 156,000 441,000 145,000 201,000 95,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 69, 100 8,300 40,600 20,200 43,500 20,700 7,200 15,600 114,500 40,300 38,600 35,600 183,800 52,600 81,000 50,200 410,900 121,900 167,400 121,600 $ 30,100 $ 23,100 $ 33,600 $(26,600) *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? Choud the production and sale of pacina bilyobo diacontinued2
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