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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 Total $ 928,000 Dirt Bikes S 267,000 111,000 Racing Bikes $251,000 153,000 Mountain Bikes $410,000 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 69,900 44,300 113,700 8,500 20,500 40,200 53,400 40,500 7,800 38,100 20,900 16,000 35,400 50,200 413,500 122,600 168,400 122,500 Total fixed expenses Net operating income (loss) S 49,500 $ 40,600 S (24,500) 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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