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: Total $ 930,000 474,000 456,080 Dirt Bikes $267,000 118,000 149,000 Mountain Racing Bikes Bikes $ 408,000 $ 255,000 203,800 153,000 205,000 102,000 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) 69,100 8,180 40,200 20,800 43,700 20,880 7,800 15,180 114,500 4,100 38,600 35,800 186,000 53,480 81,600 51,080 413,300 122,480 168,200 122,700 42,700 $ 26,600 $ 36,800 $ (20,700) $ *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. 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? Financial (disadvantage) per quarter Dirt Total Bikes $ 930,000 $267, 474,000 118,000 456,080 149,000 Mountain Racing Bikes Bikes $ 408,000 $ 255,000 203,000 153,000 205,000 192,000 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) 69,100 43,780 114,500 186,000 413,380 42,700 8,180 20,880 4e, 1e0 53,480 122,480 $ 26,600 40,200 7,800 38,600 81,600 168,200 36,800 15,180 35,800 51,080 122,780 $ (20,700) $ $ *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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 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 Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses Product line segment margin (loss) 0 0S 0 0S 0 0S 0 0 Net operating income (loss) 50
