x NEL 2018 NFL D ezto.mheducation.com/hm.tpx he Regal Cycle Company manufactures
ID: 2524313 • Letter: X
Question
x NEL 2018 NFL D ezto.mheducation.com/hm.tpx he Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing ke. Data on sales and expenses for the past quarter follow Dirt Mountain Racing Bikes Total $ 925,000 $ 268,000 $ 400,000 $257,000 Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: 458,000 113,000 194,000 151,000 467,000 155,000 206,000 106,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common foxed expenses 69,700 44,300 8,800 40,100 20,800 8,000 15,400 14,800 40,700 38,100 36,000 85,000 53,600 80,000 51,400 20,900 Total foxed expenses 413,800 124,000 166,200 123,600 Net operating income (loss) $ 53,200 S 31,000 39,800 (17,600) 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: 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 Dropped Difference: Net Operating Income Increase or (Decrease) Current Total Contribution margin (loss) Fixed expenses: Total foxed expenses Net operating income (loss)Explanation / Answer
1-
current
total if racing bike are dropped
difference-net operating income increase/ decrease
sales
925000
668000
-257000
less variable manufacturing and selling expenses
458000
337000
-121000
contribution margin /loss
467000
331000
-136000
fixed expenses
advertising
69700
48900
-20800
depreciation
44300
28900
-15400
salaries
114800
78800
-36000
common fixed expenses
185000
185000
0
total fixed expenses
413800
341600
-72200
net operating income / loss
53200
-10600
-63800
2-
Yes production of racing bikes should not be stopped as it results in increase net loss
3-
current
Dirt bikes
mountain bikes
racing bikes
sales
925000
268000
400000
257000
less variable manufacturing and selling expenses
458000
113000
194000
151000
contribution margin /loss
467000
155000
206000
106000
treacable fixed expenses
advertising
69700
8800
40100
20800
depreciation
44300
20900
8000
15400
salaries
114800
40700
38100
36000
total of traceable fixed expenses
228800
70400
86200
72200
product line segment margin
238200
84600
119800
33800
common fixed expenses
185000
Operating income
53200
4-
Yes segmented income statement would be more useful
1-
current
total if racing bike are dropped
difference-net operating income increase/ decrease
sales
925000
668000
-257000
less variable manufacturing and selling expenses
458000
337000
-121000
contribution margin /loss
467000
331000
-136000
fixed expenses
advertising
69700
48900
-20800
depreciation
44300
28900
-15400
salaries
114800
78800
-36000
common fixed expenses
185000
185000
0
total fixed expenses
413800
341600
-72200
net operating income / loss
53200
-10600
-63800
2-
Yes production of racing bikes should not be stopped as it results in increase net loss
3-
current
Dirt bikes
mountain bikes
racing bikes
sales
925000
268000
400000
257000
less variable manufacturing and selling expenses
458000
113000
194000
151000
contribution margin /loss
467000
155000
206000
106000
treacable fixed expenses
advertising
69700
8800
40100
20800
depreciation
44300
20900
8000
15400
salaries
114800
40700
38100
36000
total of traceable fixed expenses
228800
70400
86200
72200
product line segment margin
238200
84600
119800
33800
common fixed expenses
185000
Operating income
53200
4-
Yes segmented income statement would be more useful
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