com/hm.tpx The Regal Cycle Company manufactures three types of bioycles-adirt bi
ID: 2471521 • Letter: C
Question
com/hm.tpx The Regal Cycle Company manufactures three types of bioycles-adirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: 932,000 $ 269,000 $404,000 259,000 Variable manufacturing and selling expenses471,000119,000198,000154,000 Sales 461,000150,000206,000 105,000 Contribution margin Fixed expenses: Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 69,800 8,800 40,200 20,800 7,900 15,800 36,100 186,400 53,800 80,800 51,800 44,000 20,300 115,100 40,100 38.900 Total fxed expenses 415,300 123,000 167,800 124,500 Net operating income (loss) $ 45,700 S 27,000 38.200 S (19,500) Allocated on the basis of sales dollars Management is concemed 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: 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign) Total If Racing Bikes Are Difference: Net Operating Income Increase Current Total Dropped or (Decrease) 932,000$ 673,000 Sales Variable expenses Contribution margin (loss) Fixed expenses: 259,000X 154,000 471,000 461,000 317,000 356,000 (105,000) Advertising, traceable Depreciation on special equipment Salaries of product managers Common allocated costs 69,800 115,100x 186,400X 186,400 557,700 49,000 79,000x 186,400X 186,400 500,800 20,800x 38,100x 40,100x 63,800x 150,800 Total fixed expenses Net operating income (loss) S(96,700)(144,800) 45,800Explanation / Answer
Regal Cycle Company 2a Segment Margin Report Dirt Biked Mountain Bikes Racing Bikes Total Sales 269,000 404,000 259,000 932,000 Variable Manufacturing & Selling Expenses 119,000 198,000 154,000 471,000 Contribution Margin 150,000 206,000 105,000 461,000 Fixed Expenses Advertisisng Traceable 8,800 40,200 20,800 69,800 Depreciation of Special Equipment 20,300 7,900 15,800 44,000 Product Line Magaers Salary 40,100 38,900 36,100 115,100 Total Traceable fixed costs 69,200 87,000 72,700 228,900 Segment Margin 80,800 119,000 32,300 232,100 Common Fixed Cost alloacted 53,800 80,800 51,800 186,400 Net Operating Income (Loss) 27,000 38,200 (19,500) 45,700 2b . Woulsd a segment ed income statement format be more usable to management in assessing the long run profitability of various product lines? Yes 1a Effect of Discontinuation of Racing Bikes Segment Margin Report Current Total If Racing Bikes dropped Increase /(decrease) in profitability Sales 932,000 673,000 (259,000) Variable Manufacturing & Selling Expenses 471,000 317,000 154,000 Contribution Margin 461,000 356,000 (105,000) - Fixed Expenses - Advertisisng Traceable 69,800 49,000 20,800 Depreciation of Special Equipment 44,000 44,000 - Product Line Magaers Salary 115,100 79,000 36,100 Total Traceable fixed costs 228,900 172,000 56,900 Segment Margin 232,100 184,000 (48,100) Common Fixed Cost alloacted 186,400 186,400 - Net Operating Income (Loss) 45,700 (2,400) (48,100) 1b As the net operating income reduced by $48100, the racing bike should not be dropped.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.