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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 Total Bikes $926,000 $268,000 482,000 120,000 444,000 148,000 Mountain Racing Bikes Bikes $ 406,000 $ 252,000 208,000 154,000 198,000 98,000 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) 69,300 8,100 40,500 20,700 44,700 20.900 7.900 15,900 116.200 40.500 38,800 36,800 105,200 $3,600 1,200 50,400 415,400 123,200 168,400 123,800 $28,600 $ 24,800 $ 29,600 $(25,800) "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. Required: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes
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