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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 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: Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 'Allocated on the basis of sales dollars. Total Dirt Bikes $ 923,000 469,000 454,000 $ 265,000 113,000 152,000 Mountain Bikes $ 402,000 198,000 204,000 Racing Bikes $ 256,000 158,000 98,000 69,300 8,600 40,500 20,200 44,200 20,500 7,800 15,900 115,100 40,900 38,600 35,600 184,600 53,000 80,400 51,200 413,200 123,000 167,300 122,900 $ 40,800 $ 29,000 $ 36,700 $ (24,900) S 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 2 >
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