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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 Sales 930,000 266,000 405,000 259,000 Variable manufacturing and selling expenses 468,000 119,000 197,000 152,000 Contribution margin 462,000 147,000 208,000 107,000 Fixed expenses: Advertising, traceable 41,000 20,200 69,400 8,200 42,900 20,200 114,600 40,500 15,500 Depreciation of special equipment 7,200 38,800 Salaries of product-line managers 35,300 Allocated common fixed expenses 186,000 53,200 81,000 51,800 Total fixed expenses 412,900 122,100 168,000 122,800 49,100 24,900 40,000 (15,800) 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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