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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: 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) Dirt Total $920,000 436,000 151,000 484,000 117,000 208,000 193,000 Mountain Racing Bikes Bikes Bikes $268,000 $401,000 $ 251,000 159,000 92,000 69,900 8,900 40,100 20,900 43,200 20,500 7,200 15,500 115,700 40,900 38,900 35,900 184,000 53,600 80,200 50,200 412,800 123,900 166,400 122,500 $ 23,200 $ 27,100 $ 26,600 $ (30,500) *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. Required: 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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