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