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Solved: 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: Total Dirt Bikes Mountain

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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 sales and expenses for the past quarter follow:

Total Dirt
Bikes
Mountain Bikes Racing
Bikes
Sales $ 925,000 $ 267,000 $ 406,000 $ 252,000
Variable manufacturing and selling expenses 466,000 118,000 196,000 152,000
Contribution margin 459,000 149,000 210,000 100,000
Fixed expenses:
Advertising, traceable 69,500 8,200 40,700 20,600
Depreciation of special equipment 43,400 20,100 7,300 16,000
Salaries of product-line managers 114,700 40,100 38,700 35,900
Allocated common fixed expenses* 185,000 53,400 81,200 50,400
Total fixed expenses 412,600 121,800 167,900 122,900
Net operating income (loss) $ 46,400 $ 27,200 $ 42,100 $ (22,900)

*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.



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Incremental Analysis TOTAL Discontinue Net Increase/(Decrease) AMOUNT $ AMOUNT $ AMOUNT $ Sales Revenue 925,000 673,000 -252,000 Le

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