The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a moun
ID: 2511576 • Letter: T
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:
Mountain
Bikes
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 impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)
Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 87,600 units per year is:
The normal selling price is $20 per unit. The company’s capacity is 115,200 units per year. An order has been received from a mail-order house for 2,300 units at a special price of $17.00 per unit. This order would not affect regular sales.
If the order is accepted, by how much will annual profits be increased or decreased? (The order will not change the company’s total fixed costs.)
Assume the company has 500 units of this product left over from last year that are inferior to the current model. The units must be sold through regular channels at reduced prices. What unit cost is relevant for establishing a minimum selling price for these units? (Round your answer to 2 decimal places.)
Benoit Company produces three products, A, B, and C. Data concerning the three products follow (per unit):
Product
Demand for the company’s products is very strong, with far more orders each month than the company can produce with the available raw materials. The same material is used in each product. The material costs $7 per pound with a maximum of 4,400 pounds available each month.
Compute contribution margin per pound of materials used. (Round your intermediate calculations and final answers to 2 decimal places.)
Which orders would you advise the company to accept first, those for A, for B, or for C? Which orders second? Third?
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:
Explanation / Answer
Answer 1-a. Current Total Total if Racing Bikes Are Dropped Diference: Net Operating Income Inc. or (Dec.) Sales 929,000 670,000 (259,000) Variable Manufacturing & Selling Expenses 460,000 306,000 154,000 Contribution Margin 469,000 364,000 (105,000) Fixed Expenses Advertsing 69,500 49,200 20,300 Depreciation of Special Equipment 43,400 43,400 - Salaries of Product-Line Managers 116,700 79,800 36,900 Allocated Common Fixed Expenses 185,800 185,200 600 Total Fixed Expenses 415,400 357,600 57,800 Net Operating Income (Loss) 53,600 6,400 (47,200)
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