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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: Mountain Racing Bikes Dirt Total Bikes Bikes Sales $ 933,000 $264,000 409,000 $ 260,000 Variable manufacturing and selling expenses Contribution margin 471,000 113,000 203,000 155,000 462,000 151,000 206,000 105,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 69,600 43,100 20,400 115,600 40,600 186,608 20,600 15,600 36,300 8,700 40,300 7,100 38,700 81,800 167,900 124,500 52,800 52,000 414,900 122,500 $ 47,100 28,500 38,100 $(19,500) 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? 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. Dirt Bikes Mountain Bikes Racing Bikes Totals Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)
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