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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: Racing Bikes 252,000 154,000 Mountain Bikes Dirt Total $ 921,000 $ 261,000 $408,000 Bikes 477,000 119,000 204,000 444,000 142,000 204,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses. 98,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 69,000 44,200 113,400 184,200 8,200 20,800 40,000 52,200 40,400 7,700 38,200 81,600 20,400 15,700 35,200 50,400 Total fixed expenses 410,800 121,200167,900 121,700 Net operating income (loss) $ 33,200 $ 20,800 36,100 $ (23,700) 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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