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The Regal Cycle Company manufactures three types of blcycles-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 blcycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow. Total S 921,000 476.0DD 445.000 Dirt Biken $ 264,000 118,000 146,000 Mountain Bikes 405,000 206,000 199,000 Racing Bikes $ 252,000 152,000 100,000 Salon 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 Mat operating income (los) 70,200 43,900 115,100 184,200 411,400 $ 31,600 8,800 20,200 40,300 52,00 122,600 $ 23,400 40,900 7,400 38,500 81,000 267,200 S 31,200 20.500 15,800 36,300 50,400 123,000 $(23,000) nces "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
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