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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 acing Bikes Total Bikes $929, 000 270, 000 402, 000 257, 000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 459, 0001 470, 000 114, 000 156, 000 193, 000 209, 000 152, 000 105, 000 0o Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses'* 8, 300 20, 200 40, 000 54, 000 122, 500 $58, 300 $33, 500 20, 200 15, 700 35, 500 51, 400 122, 800 68, 800 43, 200 113, 900 185, 800 411, 700 40, 300 7, 300 38, 400 80, 400 166, 400 Total fixed expenses Net operating income loss) 42, 600 (17, 800) 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
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