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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 $919,000 $262,000 $401,000 $ 256,000 Variable manufacturing and 473,000 116,000 201,000 156,000 selling expenses Contribution margin 446,000 146,000 200,000 100,000 Fixed expenses: Advertising, 69,900 traceable 8,500 40,700 20,700 Depreciation of special 42,900 20,200 7,200 15,500 equipment Salaries of product-line 114,300 40,200 38,300 35,800 managers Allocated common 183,800 52,400 80,200 51,200 fixed expenses* Total fixed 410,900 121,300 166,400 123,200 expenses Net operating $ 35,100 $ 24,700 $ 33,600 $(23,200) 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 Required Required What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 2 >
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