The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a...
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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. Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dollars Total Dirt Bikes $ 926,000 472,000 454,000 $ 268,000 111,000 157,000 Mountain Bikes $ 402,000 207,000 195,000 Racing Bikes $ 256,000 154,000 102,000 69,900 8,200 40,800 20,900 43,600 20,500 7,500 15,600 114,500 40,800 38,500 35,200 185,200 53,600 80,400 51,200 413,200 123,100 167,200 122,900 $ 40,000 $ 33,900 $27,800 $ (20,900) 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: 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? 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. Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dollars Total Dirt Bikes $ 926,000 472,000 454,000 $ 268,000 111,000 157,000 Mountain Bikes $ 402,000 207,000 195,000 Racing Bikes $ 256,000 154,000 102,000 69,900 8,200 40,800 20,900 43,600 20,500 7,500 15,600 114,500 40,800 38,500 35,200 185,200 53,600 80,400 51,200 413,200 123,100 167,200 122,900 $ 40,000 $ 33,900 $27,800 $ (20,900) 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: 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?
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