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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: Total $ 926,000 479,000 447,000 Dirt Bikes $ 268,000 119,000 149,000 Mountain Bikes $ 401,000 201,000 200,000 Racing Bikes $ 257,000 159,000 98,000 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 income (loss) 70,100 43,600 114,900 185,200 413,800 $ 33,200 8,800 20,600 40,900 53,600 123,900 $ 25,100 40,500 7,400 38,900 80,200 167,000 $ 33,000 20,800 15,600 35,100 51,400 122,900 $ (24,900) *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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