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: *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. What is the amount of the change in net income if the racing bikes is dropped? (Input the amount as positive value. Omit the "$" sign in your response.)

Explanation / Answer

Hi, Please find calculations as below: Calculation for Racing Bikes Only) Sales 254000 Variable Manufacturing and Selling Expenses 154000 Less Avoidable Costs Advertising 20300 Salaries of Product Line Managers 36800 = 42900 (Company will suffer a loss/decrease of this amount if Racing Bikes are discontinued) *Rest of the costs will have to incurred even if Racing bikes are discontinued. Thanks, Aman

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