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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 $ 300,000 $ 90,000 $ 150,000 $ 60,000
Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000
Contribution margin 180,000 63,000 90,000 27,000
Fixed expenses:
Advertising, traceable 30,000 10,000 14,000 6,000
Depreciation of special equipment 23,000 6,000 9,000 8,000
Salaries of product-line managers 35,000 12,000 13,000 10,000
Allocated common fixed expenses* 60,000 18,000 30,000 12,000
Total fixed expenses 148,000 46,000 66,000 36,000
Net operating income (loss) $ 32,000 $ 17,000 $ 24,000 $ (9,000)

*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:

  1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?
  2. Should the production and sale of racing bikes be discontinued?

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