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 $ $927,000$ $ $266,000$ $ $402,000$ $ $259,000$

Variable manufacturing and selling expenses $467,000118,000197,000152,000$

Contribution margin $460,000148,000205,000107,000$

Fixed expenses:

Advertising, traceable $69,7008,50040,90020,300$

Depreciation of special equipment $43,50020,5007,20015,800$

Salaries of product$-$line managers $114,20040,20038,60035,400$

Allocated common fixed expenses$*185,40053,20080,40051,800$

Total fixed expenses $412,800122,400167,100123,300$

Net operating income $($loss$)$ $ $47,200$ $ $25,600$ $ $37,900$ $ $(16,300)$

$*$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.

Answer rating: 100% (QA)

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