Question

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

*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.

Answer 1

1
	Current Total	Total If Racing Bikes Are Dropped	Difference: Net Operating Income
Sales	922000	666000	-256000
Variable manufacturing and selling expenses	484000	328000	156000
Contribution margin (loss)	438000	338000	-100000
Fixed expenses:
Advertising, traceable	70300	49800	20500
Depreciation on special equipment	44200	44200	0
Salaries of product manager	115400	78600	36800
Common allocated costs	184400	184400	0
Total fixed expenses	414300	357000	57300
Net operating income (loss)	23700	-19000	-42700
Financial (disadvantage) $(42700)
2
No, production and sale of racing bikes should not be discontinued
3
	Total	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales	922000	263000	403000	256000
Variable manufacturing and selling expenses	484000	119000	209000	156000
Contribution margin (loss)	438000	144000	194000	100000
Traceable fixed expenses:
Advertising, traceable	70300	9000	40800	20500
Depreciation on special equipment	44200	21000	7200	16000
Salaries of product manager	115400	40000	38600	36800
Total traceable fixed expenses	229900	70000	86600	73300
Product line segment margin	208100	74000	107400	26700
Common fixed expenses	184400
Net operating income (loss)	23700

Answer 2

How you calculated the common fixed expenses, haw you obtained the 184400