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 $ 930,000 Dirt Bikes 470,000 $ 263,000 119,000 460,000 144,000 Mountain Bikes $ 409,000 198,000 211,000 Racing Bikes $ 258,000 153,000 105,000 70,100 8,700 40,900 20,500 43,100 20,200 7,700 15,200 115,300 40,400 38,200 36,700 186,000 52,600 81,800 51,600 414,500 121,900 168,600 124,000 $ 45,500 $ 22,100 $ 42,400 $ (19,000) 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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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
$ 930,000
Dirt Bikes
470,000
$ 263,000
119,000
460,000
144,000
Mountain
Bikes
$ 409,000
198,000
211,000
Racing Bikes
$ 258,000
153,000
105,000
70,100
8,700
40,900
20,500
43,100
20,200
7,700
15,200
115,300
40,400
38,200
36,700
186,000
52,600
81,800
51,600
414,500
121,900
168,600
124,000
$ 45,500
$ 22,100
$ 42,400
$ (19,000)
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?
Transcribed Image Text: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 $ 930,000 Dirt Bikes 470,000 $ 263,000 119,000 460,000 144,000 Mountain Bikes $ 409,000 198,000 211,000 Racing Bikes $ 258,000 153,000 105,000 70,100 8,700 40,900 20,500 43,100 20,200 7,700 15,200 115,300 40,400 38,200 36,700 186,000 52,600 81,800 51,600 414,500 121,900 168,600 124,000 $ 45,500 $ 22,100 $ 42,400 $ (19,000) 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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