value 10.00 points The Regal Cycle Company manufactures three types of bicycles-
ID: 2415241 • Letter: V
Question
value 10.00 points 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: Dirt Bikes Mountain Racing Bikes $926,000 $ 269,000 $ 402,000 $ 255,000 467,000117,000 193,000 57000 Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 459,000 152,000 209,000 98,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 69,700 44.600 115,100 185,200 8,300 21,000 40.900 53,800 40,800 7.900 38.900 80.400 20.600 15,700 35,300 51,000 otal fixed expenses 414,600124,000 168,000 ,600 Net operating income (loss) $ 44,400 28,000 41,000 (24,600) Allocated on the basis of sales dollars Management is concerned about the continued losses shown by the racing bikes and wantsa 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 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign .)Explanation / Answer
1 a).
Lost Contribution Margin
($98,000)
Fixed costs that can be avoided:
Advertising Traceable
20,600
Salary of Production line Manager
35,300
55,900
Decrease in net operating income for the Company as whole
($42,100)
1 a.)
Current Total
Total if Racing bike are dropped
Difference :Net operating income increase or (Decrease)
Sales
926,000
671,000
(255,000)
Varibable Cost
467,000
310,000
(157,000)
Contribution Margin
459,000
361,000
(98,000)
Fixed Expenses:
-
Advertisement Traceable
69,700
49,100
20,600
Depreciation on special equipment
44,600
44,600
-
Salaries for production manager
115,100
79,800
35,300
Common allocated costs
185,200
185,200
-
Total Fixed Expenses
414,600
358,700
55,900
Net operating Income
44,400
2,300
(42,100)
1 b) No
2 a).
Sales
926,000
269,000
402,000
255,000
Varibable Manufacutring and Selling Expenses
467,000
117,000
193,000
157,000
Contribution Margin
459,000
152,000
209,000
98,000
Fixed Expenses:
-
Advertisement
69,700
8,300
40,800
20,600
Depreciation on special equipment
44,600
21,000
7,900
15,700
Salaries for production manager
115,100
40,900
38,900
35,300
Total Traceable Fixed expeses
229,400
70,200
87,600
71,600
Production line Segment Margin
229,600
81,800
121,400
26,400
Common Fixed Expenses
185,200
Net Operating income
44,400
2 b) yes
Lost Contribution Margin
($98,000)
Fixed costs that can be avoided:
Advertising Traceable
20,600
Salary of Production line Manager
35,300
55,900
Decrease in net operating income for the Company as whole
($42,100)
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