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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 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: Sales Variable manufacturing and selling expenses Contribution margin. Fixed expensest Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dollars. $ 924,000 $266,000 $ 403,000 Total Dirt Bikes Mountain Racing Bikes: Bikes $255,000 475,000 116,000 206,000 153,000 449,000 150,000 197,000 102,000 69,500 8,900 40,300 20,600 44,000 20,400 7,700) 15,900 114,300 40,900 38,100 35,300 184.800 53,200 80,600 51,000 412,900 123,400 166,700 122,800 $ 36,100 $ 26,600 $ 30,300 $(20,000) 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
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