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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: Total $ 929,000 467,000 462,000 Dirt Bikes $ 263,000 114,000 149,000 Mountain Bikes $ 407,000 194,000 213,000 Racing Bikes $ 259,000 159,000 100,000 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) 69,000 43, 100 114,200 185,800 412,100 $ 49,900 8,600 20, 200 40,000 52,600 121,400 $ 27,600 40,200 7,300 38,400 81,400 167,300 $ 45,700 20,200 15,600 35,800 51,800 123,400 $ (23,400) *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? What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter $ 49,900 X
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