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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 Bikes Mountain Racing Bikes Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $.929,000 $269,000 $. 405,000 $. 255,000 159,000 96,000 474,000 115,000 455,000 154,000 200,000 205,000 AO0 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common 20,900 15,100 36,500 51,000 123,500 $ 39,600 $30,200 $ 36,900 $(27,500) 8,700 43,100 20,500 116,100 40,800 53,800 415,400 123,800 70,400 40,800 7,500 38,800 81,000 168,100 fixed expenses 185,800 Total fixed expenses Net operating income (loss) 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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