Return to question

Item $1$

Exercise $13-2($Static$)$ Dropping or Retaining a Segment $[$LO$13-2]$

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:

$$TotalDirt BikesMountain BikesRacing BikesSales$ $300,000$$ $90,000$$ $150,000$$ $60,000$Variable manufacturing and selling expenses$120,00027,00060,00033,000$Contribution margin$180,00063,00090,00027,000$Fixed expenses:$$Advertising$,$ traceable$30,00010,00014,0006,000$Depreciation of special equipment$23,0006,0009,0008,000$Salaries of product$-$line managers$35,00012,00013,00010,000$Allocated common fixed expenses$*60,00018,00030,00012,000$Total fixed expenses$148,00046,00066,00036,000$Net operating income $($loss$)$$ $32,000$$ $17,000$$ $24,000$$ $(9,000)$

$*$Allocated on the basis of sales dollars.

Management is considering discontinuing the racing bikes. The special equipment used to produce racing bikes has no resale value and does not wear out.

Required:

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

Should the production and sale of racing bikes be discontinued?