The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun

Question

The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Racing Bikes 252,000 154,000 Mountain Bikes Dirt Total $ 921,000 $ 261,000 $408,000 Bikes 477,000 119,000 204,000 444,000 142,000 204,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses. 98,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 69,000 44,200 113,400 184,200 8,200 20,800 40,000 52,200 40,400 7,700 38,200 81,600 20,400 15,700 35,200 50,400 Total fixed expenses 410,800 121,200167,900 121,700 Net operating income (loss) $ 33,200 $ 20,800 36,100 $ (23,700) 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.

Explanation / Answer

2a Total Dirt Bikes Mountain Bikes Racing Bikes Sales 921000 261000 408000 252000 Variable manufacturing and selling expenses 477000 119000 204000 154000 Contribution margin (loss) 444000 142000 204000 98000 Traceable fixed expenses: Advertising, traceable 69000 8200 40400 20400 Depreciation on special equipment 44200 20800 7700 15700 Salaries of product manager 113400 40000 38200 35200 Total traceable fixed expenses 226600 69000 86300 71300 Product line segment margin 217400 73000 117700 26700 Common fixed expenses 184200 Net operating income (loss) 33200

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