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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 $ 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:

  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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