Total Dirt Mountain Racing Bikes Bikes Bikes
Sales $ 920,00 261,000 407,000 $ 252,000
Variable manufacturing and selling expenses 472,000 119,000 194,000 159,000
Contribution margin 448,000 142,000 213,000 93,000
Fixed expenses: Advertising, traceable 69,800 8,900 40,400 20,500
Depreciation of special equipment 42,900 20,200 7,300 15,400
Salaries of product-line managers 114,300 40,500 38,700 35,100
Allocated common fixed expenses* 184,000 52,200 81,400 50,400
Total fixed expenses 411,000 121,800 167,800 121,400
Net operating income (loss) $ 37,000 $ 20,200 $ 45,200 $ (28,400)
*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:
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