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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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 922,000 $ 264,000 $ 403,000 $ 255,000 Variable manufacturing and selling expenses 475,000 116,000 207,000 152,000 Contribution margin 447,000 148,000 196,000 103,000 Fixed expenses: Advertising, traceable 70,100 8,900 40,700 20,500 Depreciation of special equipment 43,400 20,400 7,900 15,100 Salaries of product-line managers 114,500 40,400 38,000 36,100 Allocated common fixed expenses* 184,400 52,800 80,600 51,000 Total fixed expenses 412,400 122,500 167,200 122,700 Net operating income (loss) $ 34,600 $ 25,500 $ 28,800 $ (19,700) *Allocated on the basis of sales dollars. Management is considering discontinuing the racing bikes. 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? Should the production and sale of racing bikes be discontinued
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