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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: $ Dirt Total Bikes $ 929,000 $268,000 465,000 115,000 464,000 153,000 Mountain Racing Bikes Bikes 410,000 $ 251,000 197,000 153,000 213,000 98,000 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) 7,100 69,600 8,100 43,500 20,400 113,700 40,200 185,800 53,600 412,600 122,300 $ 51,400 $ 30,700 40,900 20,600 16,000 38,300 35,200 82,000 50,200 168,300 122,000 44,700 $(24,000) $ *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. Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in asse run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Sales Variable manufacturing and selling expenses Contribution margin (loss) 0 0 0 0 Traceable fixed expenses: Advertising Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) 0 $ 0 $ 0 $ 0 Common fixed expenses Net operating income (loss) $ 0
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