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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 | Dirt Bikes | Mountain Bikes | Racing Bikes | |||||||||
Sales | $ | 932,000 | $ | 269,000 | $ | 405,000 | $ | 258,000 | ||||
Variable manufacturing and selling expenses | 483,000 | 118,000 | 209,000 | 156,000 | ||||||||
Contribution margin | 449,000 | 151,000 | 196,000 | 102,000 | ||||||||
Fixed expenses: | ||||||||||||
Advertising, traceable | 69,500 | 8,300 | 40,800 | 20,400 | ||||||||
Depreciation of special equipment | 43,500 | 21,000 | 7,300 | 15,200 | ||||||||
Salaries of product-line managers | 114,700 | 40,800 | 38,000 | 35,900 | ||||||||
Allocated common fixed expenses* | 186,400 | 53,800 | 81,000 | 51,600 | ||||||||
Total fixed expenses | 414,100 | 123,900 | 167,100 | 123,100 | ||||||||
Net operating income (loss) | $ | 34,900 | $ | 27,100 | $ | 28,900 | $ | (21,100) | ||||
*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.
Financial ( disadvantage) per quarter?
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