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The Regal Cycle ompany 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 ompany 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: Total $ 927,000 463,000 464,000 Dirt Bikes $ 268,000 111,000 157,000 Mountain Bikes $ 400,000 195,000 205,000 Racing Bikes $ 259,000 157,000 102,000 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) 70,000 43,500 115,400 185,400 414,300 $ 49, 700 8,900 20,800 40,200 53,600 123,500 $ 33,500 40,200 7,100 39,000 80,000 166,300 $ 38,700 20,900 15,600 36,200 51,800 124,500 $ (22,500) *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
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