Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 925,000 $ 269,000 $ 403,000 $ 253,000
Variable manufacturing and selling expenses 468,000 114,000 204,000 150,000
Contribution margin 457,000 155,000 199,000 103,000
Fixed expenses:
Advertising, traceable 69,600 8,600 40,300 20,700
Depreciation of special equipment 44,400 20,800 7,700 15,900
Salaries of product-line managers 114,200 40,200 38,700 35,300
Allocated common fixed expenses* 185,000 53,800 80,600 50,600
Total fixed expenses 413,200 123,400 167,300 122,500
Net operating income (loss) $ 43,800 $ 31,600 $ 31,700 $ (19,500)
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?