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
$ 919,000
$ 264,000
$ 402,000
$ 253,000
Variable manufacturing and selling expenses
473,000
118,000
203,000
152,000
Contribution margin
446,000
146,000
199,000
101,000
Fixed expenses:
Advertising, traceable
69,700
8,300
40,500
20,900
Depreciation of special equipment
43,800
20,800
7,400
15,600
Salaries of product-line managers
115,200
40,900
39,000
35,300
Allocated common fixed expenses*
183,800
52,800
80,400
50,600
Total fixed expenses
412,500
122,800
167,300
122,400
Net operating income (loss)
$ 33,500
$ 23,200
$ 31,700
$ (21,400)
*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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