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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. 7:20 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 ces Net operating income (loss) "Allocated on the basis of sales dollars Total Dirt Bikes $ 931,000 455,000 476,000 $ 269,000 110,000 159,000 Mountain Bikes $ 404,000 195,000 Racing Bikes $ 258,000 150,000 209,000 108,000 69,200 8,200 40,700 20,300 43,700 20,600 7,300 15,800 116,300 40,900 38,800 36,600 186,200 53,800 80,800 51,600 415,400 123,500 167,600 124,300 $ 60,600 $ 35,500 $ 41,400 5 (16,300) 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. 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?
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