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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 Racing Bikes Total Bikes $ 923,000 $264,000 $ 404,000 255,000 Variable manufacturing and selling expenses 472,000 114,000198,000 160,00 206,00095,000 Sales Contribution margin Fixed expenses: 451,000150,900 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,400 42,700 20, 300 115,700 40,600 184,600 52,800 40,200 7,100 38,900 69,200 20,600 15,300 36, 200 80,800 51,000 122.100 167,000 123Lee Total fixed expenses Net operating income (loss) 123,100 $ 38,800 27,900 $ 39,000 $(28,100) 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
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