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: DIE Mountain Racing Total Biker hi con Bikes $ 929,000 $269,000 $ 407,000 5 253,000 481.000 115,000 200,000 158.000 448,000 154,000 199,000 95.000 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 Snoone (loan) 70,700 8,800 41,000 20.900 43,700 21,000 7,500 15,200 115,800 40.800 38,500 36,500 185,800 53,800 81,400 50.600 416,000 224,400 168,400 123,200 $32,000 23,600 $ 30,600 (28,200) "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, 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? 448,000 154,000 199,000 95,000 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 (los) 70, 700 8,800 41,000 20,900 43,700 21,000 7.500 15,200 115,800 40,800 38,500 36,500 185,800 53,800 81,400 50,600 416,000 124, 400 168,400 123,200 $ 32,000 $ 29,600 $ 30,600 $(28,200) "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 w the line should be discontinued. The special equipment used to produce racing bikes has no resale value and does not 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 property formatted segmented income statement that would be more useful to management in assessing t profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Should the production and sale of racind bikes be discontinued? Yes No Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (los) Traceable fixed expenses Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)
