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$ 926,000$ 269,000$ 405,000$ 252,000Variable manufacturing and selling expenses468,000111,000206,000151,000Contribution margin458,000158,000199,000101,000Fixed expenses: Advertising, traceable69,8008,80040,70020,300Depreciation of special equipment43,70020,4007,40015,900Salaries of product-line managers114,20040,70038,40035,100Allocated common fixed expenses*185,20053,80081,00050,400Total fixed expenses412,900123,700167,500121,700Net operating income (loss)$ 45,100$ 34,300$ 31,500$ (20,700)*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?

Step 1:Computation of Financial Advantage (disadvantage) as follows :…

Answered: The Regal Cycle Company manufactures…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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:

	Total	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales	$ 926,000	$ 269,000	$ 405,000	$ 252,000
Variable manufacturing and selling expenses	468,000	111,000	206,000	151,000
Contribution margin	458,000	158,000	199,000	101,000
Fixed expenses:
Advertising, traceable	69,800	8,800	40,700	20,300
Depreciation of special equipment	43,700	20,400	7,400	15,900
Salaries of product-line managers	114,200	40,700	38,400	35,100
Allocated common fixed expenses*	185,200	53,800	81,000	50,400
Total fixed expenses	412,900	123,700	167,500	121,700
Net operating income (loss)	$ 45,100	$ 34,300	$ 31,500	$ (20,700)

*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.