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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: TotalDirt BikesMountain BikesRacing BikesSales$ $ $ $ Variable manufacturing and selling expensesContribution marginFixed expenses: Advertising, traceableDepreciation of special equipmentSalaries of productline managersAllocated common fixed expensesTotal fixed expensesNet operating income loss$ $ $ $ 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? Should the production and sale of racing bikes be discontinued? Prepare a properly formatted segmented income statement that would be more useful to management in assessing the longrun profitability of the various product lines.
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