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 Bikes Total Bikes Bikes Sales Variable manufacturing and selling $924,000 $266,000 $ 400,000 484,000 116,000 209,000 258,000 159,000 expenses Contribution margin Fixed expenses: 440,000 150,000 191,000 99,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 40,700 7,500 38,600 80,000 413,100 122,700 166,800 8,100 43,800 20,700 40,700 53,200 69,500 20,700 15,600 35,700 51,600 123,600 115,000 184,800 Total fixed expenses Net operating income (loss) $ 26,900 27,300 24,200 $ (24,600) 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 Required1Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

Answer 1