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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
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. Dirt Mountain Racing Total Bikes Bikes Bikes $928,000 $269,000 $401,000 $ 258,000 471,000 114,000 200,000 157,000 457,000 155,000 201,000 101,000 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 incone (loss) 69,200 8,400 40,400 20,400 43,400 20,400 7,400 15,600 115,200 40,900 38,100 36,200 185,600 53,800 80,200 51,600 413,400 123,500 166, 100 123,800 $ 43,600 $ 31,500 $ 34,900 $(22,800) "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
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