Answer Happy

The Regal cycle Company manufactures three types of bicycles-o dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Mountain Total Dirt Bikes Bikes Racing Bikes Sales 5 924,000 $ 263,000 $ 400,000 5.257,000 Variable manufacturing and selling expenses 466,000 119,000 196,000 151.000 Contribution margin 450,000 140,000 208,000 106,000 Fixed expenses Advertising. traceable 70,000 8,700 40,600 20,700 Depreciation of special equipment 43,000 20,800 7.400 15,600 salaries of product-line managyra 114,300 40,400 30,000 35,900 Allocated common fixed expenses 184,800 52 500 30,000 51.400 Total fixed expenses 412,900 122,500 165,000 123,600 Not operating income (10) $ 45,100 $ 21,500 $ 41,200 $ (17,600) "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.