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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 Bikes $920,000 262,000 407,000 251,000 483,000 118,000 208,000 157,000 Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 437,000 144,000 199,000 94,000 8,600 20,900 40,700 52,400 20,200 16,000 Advertising, traceable 69,700 40,900 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 44,300 115,100 7,400 38,700 35,700 184,000 81,400 50,200 413,100 122,600 168,400 122,100 $ 23,900 21,400 30,600 $ (28,100) 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
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