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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: Racing Dirt Bikes Mountain Total 483,000 451,000 152,000 Bikes 208,000 197,000 Bikes 158,000 102,000 Sales $934,000 $ 269,000 $ 405,000$ 260,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses 117,000 69,000 43,600 115,500 186,800 8,200 20,800 40,900 53,800 20,500 15,500 36,100 52,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 40,300 7,300 38,500 81,000 Total fixed expenses 414,900 123,700 167,100 124,100 Net operating income (loss) $ 36,100 $ 28,300 $ 29,900 $ (22,100) 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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