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QUESTION ONE

QUESTION TWO

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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 923,000 $267,000 $ 401,000 $ 255,000 473,000 114,000 201,000 158,000 450,000 153,000 200,000 97,000 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) 70,200 9,000 40,500 20,700 43,900 21,000 7,700 15, 200 113,800 40,200 38,400 35,200 184,600 53,400 80,200 51,000 412,500 123,600 166,800 122, 100 $ 37,500 $ 29,400 $ 33,200 $ (25,100) *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 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Financial (disadvantage) per quarter Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0

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