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The Wheels R' Us Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for
The Wheels R' Us Company manufactures three types of bicyclesa 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 $ 919,000 475,000 $ 262,000 119,000 Mountain Bikes $ 404,000 Racing Bikes $ 253,000 198,000 158,000 444,000 143,000 206,000 95,000 69,300 8,300 40,800 20,200 44,000 20,100 8,000 15,900 115,200 40,000 38,800 36,400 183,800 52,400 80,800 50,600 412,300 120,800 168,400 123,100 $ 31,700 $ 22,200 $ 37,600 $ (28,100) 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? Put in a negative number with a "-" sign to indicate a financial disadvantage. 2. Should the production and sale of racing bikes be discontinued
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