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:

Total Dirt Bikes Mountain Bikes Racing Bikes

Sales $ 926,000 $ 264,000 $ 408,000 $ 254,000

Variable manufacturing and selling expenses 460,000 112,000 196,000 152,000

Contribution margin 466,000 152,000 212,000 102,000

Fixed expenses:

Advertising, traceable 69,200 8,300 40,300 20,600

Depreciation of special equipment 43,800 20,900 7,600 15,300

Salaries of product-line managers 113,200 40,000 38,100 35,100

Allocated common fixed expenses* 185,200 52,800 81,600 50,800

Total fixed expenses 411,400 122,000 167,600 121,800

Net operating income (loss) $ 54,600 $ 30,000 $ 44,400 $ (19,800)

*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.

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 $ 926,000 460,000 466,000 Dirt Bikes $ 264,000 112,080 152,000 Mountain Bikes $ 498,000 196,000 212, 200 Racing Bikes $ 254,000 152,000 102,000 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) 69,200 43,800 113,200 185,200 411,400 $ 54,600 8.300 20,90 40,000 52,808 122,000 $ 30,000 40,300 1,600 38, 100 82,600 167,600 $ 44,400 20,680 15,300 35, 100 50, 800 121, 880 $ 19, 800) Print O "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. rences more useful to managemen ofitability 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 Required Required 2 > 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 0 O 0 0 Contribution margin (los) Traceable fixed expenses 0 0 0 0 OS Total traceable fixed expenses Product line segment margin (s) 0 0 $ 0 S 0 Not operating income (los)