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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 $ 933,000 472,000 461,000 Dirt Bikes $ 266,000 117.000 149.000 Mountain Bikes $ 408,000 199,000 209,000 Racing Bikes $259,000 156,000 103.000 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) 70,100 43,500 116,300 186.600 8.800 20,500 41,000 53,200 123,500 $ 25,500 41,000 7,600 38,900 81,600 20,300 15,400 36,400 51.800 416.500 169,100 $ 39,900 123.900 $ (20,900) 44.500 *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: 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.) Current Total Total If Racing Bikes Are Dropped Difference: Net Operating Income Increase or (Decrease) 0 0 Sales (Variable manufacturing and selling expenses Contribution margin (loss) Fixed expenses: Advertising, traceable Depreciation on special equipment Salaries of product managers Common allocated costs Total fixed expenses Net operating income (loss) 0 0 $ 0 $ 0 $ 0 1b. Should production and sale of the racing bikes be discontinued? O Yes 2a. Prepare a segmented income statement. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin Common fixed expenses Net operating income (loss) 0 0 0 0 $ 0 $ 0 $ 0 2b. Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines Yes No

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