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The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a...

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 $ 933,000 $ 267,000 $ 406,000 $ 260,000
Variable manufacturing and selling expenses 466,000 115,000 198,000 153,000
Contribution margin 467,000 152,000 208,000 107,000
Fixed expenses:
Advertising, traceable 70,000 8,800 40,700 20,500
Depreciation of special equipment 43,300 20,900 7,200 15,200
Salaries of product-line managers 115,400 40,800 38,100 36,500
Allocated common fixed expenses* 186,600 53,400 81,200 52,000
Total fixed expenses 415,300 123,900 167,200 124,200
Net operating income (loss) $ 51,700 $ 28,100 $ 40,800 $ (17,200)

*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.

What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?

Should the production and sale of racing bikes be discontinued? Yes or No

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.

Totals Dirt Bikes Mountain Bikes Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)

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