question archive The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike
The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike
Subject:AccountingPrice: Bought3
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 Mountain Racing
Sales $925,000 $267,000 $407,000 $251,000
Variable manufacturing and selling expenses 468,000 116,000 200,000 152,000
Contribution margin 457,000 151,000 207,000 99,000
Fixed expenses:
Advertising, traceable 69,300 8,700 40,300 20,300
Depreciation of special equipment 44,000 20,800 8,000 15,200
Salaries of product-line managers 14,100 40,100 38,600 35,400
Allocated common fixed expenses* 185,000 53,400 81,400 50,200
Total fixed expenses 412,400 123,000 168,300 121,100
Net operating income (loss) $44,600 $28,000 $38,700 $(22,100)
*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?
