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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 Mountain Racing Total Bikes Bikes Bikes Sales Variable manufacturing and selling $921,000 $262,000 $408,000 251,000 461,000 110,000 197,000 154,000 expenses Contribution margin Fixed expenses: 460,000 152,000 11,000 97,000 Advertising, traceable Depreciation of special equipment Salaries of product-1ine managers Allocated common fixed expenses* 20,500 15,800 35,000 50,200 412,400122,700 168,200121,500 $ 47,600 29,300 42,800 (24,500) 8,400 44,100 21,000 114,800 40,900 184.200 52,400 69,300 40,400 7,300 38,900 81,600 Total fixed expenses Net operating income (loss) 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? Required 1 Required 2>
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