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 $ $ $ $
Variable manufacturing and selling expenses
Contribution margin
Fixed expenses:
Advertising, traceable
Depreciation of special equipment
Salaries of productline managers
Allocated common fixed expenses
Total fixed expenses
Net operating income loss $ $ $ $
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?
