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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:

Total Dirt Bikes Mountain Bikes Racing Bikes
Sales $ 928,000 $ 269,000 $ 408,000 $ 251,000
Variable manufacturing and selling expenses 456,000 110,000 192,000 154,000
Contribution margin 472,000 159,000 216,000 97,000
Fixed expenses:
Advertising, traceable 70,300 8,900 40,600 20,800
Depreciation of special equipment 44,100 20,800 7,700 15,600
Salaries of product-line managers 114,400 40,300 38,100 36,000
Allocated common fixed expenses* 185,600 53,800 81,600 50,200
Total fixed expenses 414,400 123,800 168,000 122,600
Net operating income (loss) $ 57,600 $ 35,200 $ 48,000 $ (25,600)

*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?

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.

Complete this question by entering your answers in the tabs below.

  • Required 1

What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? ________

Complete this question by entering your answers in the tabs below.

  • Required 2

Should the production and sale of racing bikes be discontinued?

Yes radio button unchecked is correct answer

Complete this question by entering your answers in the tabs below.

  • Required 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.

Totals Dirt Bikes Mountain Bikes Racing Bikes
not attempted not attempted not attempted not attempted not attempted
not attempted not attempted not attempted not attempted not attempted
Contribution margin (loss) 0 0 0 0
Traceable fixed expenses:
not attempted not attempted not attempted not attempted not attempted
not attempted not attempted not attempted not attempted not attempted
not attempted not attempted not attempted not attempted not attempted
Total traceable fixed expenses 0 0 0 0
Product line segment margin (loss) 0 $0 $0 $0
not attempted not attempted

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