The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sa

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The Regal Cycle Company Manufactures Three Types Of Bicycles A Dirt Bike A Mountain Bike And A Racing Bike Data On Sa 1 (195.71 KiB) Viewed 109 times

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 $ 919,000 $263,000 $ 400,000 $ 256,000 470,000 117,000 200,000 153,000 449,000 146,000 200,000 103,000 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) 69,200 8,200 40,800 20,200 43,700 20,700 7,900 15,100 115,400 40,100 38,400 36,900 183,800 52,600 80,000 51,200 412,100 121,600 167,100 123,400 $ 36,900 $ 24,400 $ 32,900 $(20,400) *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.