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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 Bikes Mountain Racing Bikes Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $. 932,000 $267,000 $.408,000 $. 257,000 205,000 477,000 119,000 455,000 148,000 153,000 104,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 203,000 40,900 38,800 100300- 8,400 20,200 16,000 36,500 51.400 168,600 124,100 69,500 43,600 20, 300 115,400 40,100 186,400 414,900 122,200 7,300 53.400 81,6000 Total fixed expenses Net operating income (loss) $ 40,100 $25,800 $ 34,400 $(20,100) 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
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