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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 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: 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 Net operating income (loss) *Allocated on the basis of sales dollars. Total $ 923,000 482,000 441,000 Dirt Bikes $ 269,000 116,000 153,000 Mountain Bikes $ 402,000 206,000 Racing Bikes $ 252,000 160,000 196,000 92,000 69,900 8,400 40,800 20,700 43,800 20,700 7,700 15,400 115,900 40,500 38,900 36,500 184,600 53,800 80,400 50,400 414,200 123,400 167,800 123,000 $ 26,800 $ 29,600 $ 28,200 $ (31,000) 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. Complete this question by entering your answers in the tabs below.
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