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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 926,000 $268,000 $ 407,000 $ 251,000 468,000 111,000 203,000 154,000 458,000 157,000 204,000 97,000 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) 69,300 44,700 114,900 185,200 414,100 $ 43,900 8,800 20,900 40,500 53,600 123,800 $ 33,200 40,400 20,100 7,900 15,900 38,600 35,800 81,400 50,200 168,300 122,000 35,700 $ (25,000) $ *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.
only need requirements 1 and 3 answered. Thanks!

Answer 1

			Current total	total if racing bikes are dropped	Defference
sales			926000	675000	-251000
variable cost			468000	314000	154000
contribution			458000	361000	-97000
Fixed expenses
advertising ,traceable			69300	49200	20100
depreciation			44700	44700	0
salaries			114900	79100	35800
allocated cost			185200	185200	0
Total fixed expenses			414100	358200	55900
net operating income			43900	2800	-41100
Financial (disadvantage) by -41100 if bike racing discontinued
2) production & sale of racing bike should not be discontinued
3)			total	Dirt bikes	mountain bikes	racing bike
sales			926000	268000	407000	251000
variable manufacturing & selling exp			468000	111000	203000	154000
contribution margin			458000	157000	204000	97000
traceable fixed expenses
advertising			69300	8800	40400	20100
depreciation on special equipment			44700	20900	7900	15900
salary of product manager			114900	40500	38600	35800
total traceable fixed expenses			228900	70200	86900	71800
product line segment margin			229100	86800	117100	25200
common fixed expenses			185200
net operating income (loss)			43900

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