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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: 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) *Allocated on the basis of sales dollars. Total $ 924,000 471,000 453,000 Dirt Bikes $ 262,000 116,000 146,000 Mountain Bikes $ 405,000 196,000 Racing Bikes $ 257,000 159,000 209,000 98,000 69,600 8,400 40,900 20,300 43,700 20,300 7,700 15,700 115,100 41,000 38,200 35,900 184,800 52,400 81,000 51,400 413,200 122,100 167,800 123,300 $ 39,800 $ 23,900 $ 41,200 $ (25,300) 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: 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? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage (disadvantage) per quarter Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines. Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising, traceable Salaries of the product line managers Depreciation of special equipment Total traceable fixed expenses Product line segment margin (loss) Common fixed expenses Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes 69 0 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 0

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