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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: oints Sales eBlock Hint Print 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 $ 922,000 467,000 455,000 Dirt Bikes $ 262,000 116,000 146,000 Mountain Bikes: $ 403,000 Racing Bikes $ 257,000 200,000 203,000 151,000 106,000 69,900 8,500 40,700 20,700 43,300 20,200 7,800 15,300. 115,700 40,300 38,900 36,500 184,400 52,400 80,600 51,400 413,300 121,400 168,000 123,900 $ 41,700 $ 24,600 $35,000 (17,900) D References 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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