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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:

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 Dirt Bikes Mountain Bikes Racing Bikes
Sales $ 928,000 $ 267,000 $ 401,000 $ 260,000
Variable manufacturing and selling expenses 458,000 113,000 193,000 152,000
Contribution margin 470,000 154,000 208,000 108,000
Fixed expenses:
Advertising, traceable 70,000 8,700 40,900 20,400
Depreciation of special equipment 43,100 20,800 7,200 15,100
Salaries of product-line managers 114,800 40,800 38,900 35,100
Allocated common fixed expenses* 185,600 53,400 80,200 52,000
Total fixed expenses 413,500 123,700 167,200 122,600
Net operating income (loss) $ 56,500 $ 30,300 $ 40,800 $ (14,600)

*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.

*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. 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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