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

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Accounting

The Regal Cycle Company manufactures three types of bicyclesa 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 $ $920, 000$ $ $263, 000$ $ $406, 000$ $ $251, 000$

Variable manufacturing and selling expenses $463, 000 116, 000 195, 000 152, 000$

Contribution margin $457, 000 147, 000 211, 000 99, 000$

Fixed expenses:

Advertising, traceable $69, 900 8, 500 40, 900 20, 500$

Depreciation of special equipment $43, 500 20, 300 7, 600 15, 600$

Salaries of product $-$ line managers $115, 500 40, 400 38, 300 36, 800$

Allocated common fixed expenses $* 184, 000 52, 600 81, 200 50, 200$

Total fixed expenses $412, 900 121, 800 168, 000 123, 100$

Net operating income $($ loss $)$ $ $44, 100$ $ $25, 200$ $ $43, 000$ $ $(24, 100)$

$*$ 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?

Should the production and sale of racing bikes be discontinued?

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