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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 $ 917,000 $ 262,000 $ 402,000 $ 253,000
Variable manufacturing and selling expenses 477,000 119,000 199,000 159,000
Contribution margin 440,000 143,000 203,000 94,000
Fixed expenses:
Advertising, traceable 70,400 8,600 40,900 20,900
Depreciation of special equipment 44,000 20,500 7,500 16,000
Salaries of product-line managers 115,700 41,000 38,500 36,200
Allocated common fixed expenses* 183,400 52,400 80,400 50,600
Total fixed expenses 413,500 122,500 167,300 123,700
Net operating income (loss) $ 26,500 $ 20,500 $ 35,700 $ (29,700)

*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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Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes

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