The Regal Cycle Company manufactures thvee types of blcycles

The Regal Cycle Company manufactures thvee types of blcycles-a dirt blke, a mountain bike, and a racing bike. Deta on sales and expenses for the past quarter follow 8.33 totalBikes BikesBikes Sales variable manufacturing and.elling $920,000 $262,000 $406,000 ?.coo 252,0 ?ss,000 411,000119,100 Contribution margin 0,9008,90041,00021,00D Salaries of preduct-line macagers 114,600 38,800 35,600 40,200 Total tixed expenses Set operating Lncone (loss) 25,900 20,600 34,500 $(29,200) %located on the basis of sales dollars. References Management is concerned sbout the continued losses shown by the racing bikes and wants a recommendation as to whether or not be discontinued. The specialecipment used to produce racing bikes has no resale value and does not wear out Required ?What is the francial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a property formated proftability of the verious product lines segmented income statement that would be more useful to management in assessing the long-run Complete this question by entering your answers in the tabs below. RquRequred 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

Solution

1. Financial advantage (disadvantage) per quarter: ($36400)

2. No.

The production and sale of racing bikes should not be discontinued as it will result in a loss.

3.

	Current Total	Total If Racing Bikes Are Dropped	Difference: Financial advantage (disadvantage)
Sales	920000	668000	-252000
Variable manufacturing and selling expenses	481000	322000	159000
Contribution margin (loss)	439000	346000	-93000
Fixed expenses:
Advertising, traceable	70900	49900	21000
Depreciation on special equipment	43600	43600	0
Salaries of product-line managers	114600	79000	35600
Allocated common fixed expenses	184000	184000	0
Total fixed expenses	413100	356500	56600
Net operating income (loss)	25900	-10500	-36400