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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 Bikes Racing Bikes Total Sales $90,000 $150,000 $60,000 $300,000 Variable manufacturing and selling expenses 27,000 60,000 33.000 120.000 Contribution Margin $63,000 $ 90,000 $27,000 $180,000 Fixed expenses Advertising - traceable 10,000 14,000 6,000 30,000 Depreciation of special equipment 6,000 9,000 8,000 23,000 Salaries of product line managers 12,000 13,000 10,000 35,000 Allocated common fixed expense 18.000 30.000 12.000 60,000 Total fixed expenses $46,000 $66,000 $36,000 $148,000 Net operating income (loss) $17,000 $24,000 $ 9,000) $ 32,000 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. Should production and sale of the racing bikes be discontinued? Explain. Show computations to support your
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