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The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the
The Regal Cycle Company manufactures three types of bicyclesa 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 $261,000 $ 405,000 $ 253,000 470,000 116,000 199,000 155,000 449,000 145,000 206,000 98,000 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) 69,800 8,500 40,500 20,800 44,000 20,300 8,000 15,700 114,700 40,200 38,500 36,000 183,800 52,200 81,000 50.600 412,300 121,200 168,000 123, 100 $ 36,700 $ 23,800 $ 38,000 $(25,100) ana 50, *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. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Financial (disadvantage) per quarter
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