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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 Bikes Mountain Racing Total Bikes Bikes $922,000 S 262,000 $ 408,000 $ 252,000 150,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 463.000 119,000 194,000 59,000 143,000 214,000 102,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 69,600 42,700 115,500 184,400 8,700 20,200 41,000 52,400 40,300 7,100 39,000 81,600 20,600 15,400 35,500 50,400 Total fixed expenses 412,200 122,300 168,000 121,900 Net operating income (loss) S 46,800 S 20,700 S 46,000 S (19,900) 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
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