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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
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: Mountain Total Dirt Bikes Bikes Racing Bikes Sales $ 913,666 $ 261,666 $ 466,666 $ 252,666 Variable manufacturing and selling expenses 464,666 118,666 196,666 156,666 Contribution margin 449,666 143,666 264,666 162,666 Fixed expenses: Advertising, traceable 69,766 8,466 46,966 26,466 Depreciation of special equipment 43,166 26,466 7,166 15,666 Salaries of product-line managers 115,666 46,366 38,566 36,266 Allocated common fixed expenses* 182,666 52,266 86,666 56,466 Total Fixed expenses 416,466 121,366 166,566 122,666 Net operating income (1055) $ 38,666 $ 21,766 $ 37,566 $ (26,666) \"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. 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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? OYes ONOPrepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)
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