Exercise 10-2 dropping or retaining a segment [LO10-2]

Exercise 10-2 Dropping or Retaining a Segment [L010-2] 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 Bikes $ 919,000 $ 262,000 $407,000 $ 250,000 464,000 117,000 192,000 155,000 Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 455,000 145,000 215,00095,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,800 40,50020,300 15,400 36,700 83,800 52,40081,40050,000 69,600 43,60021,000 15,000 40,00038,300 7,200 Total fixed expenses 412,000 122,200167,400 122,400 Net operating income (loss) 43,000 22,800 47,600 S (27,400) 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