value 1.00 points The Regal Cycle Company manufactures three types of bicycles-a

Question

value 1.00 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 Mountain Racing Total Sales $920,000 $ 261,000 $ 408,000 $ 251,000 470,000 115,000 200,000 55,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses 450,000 146,000 208,000 96,000 69,200 43,400 114,000 184,000 8,300 20,600 40,300 52,200 40,600 7,300 38,600 81,600 20,300 15,500 35,100 50,200 Advertising, traceable Depreciation of special equipment Salaries of product-line manager Allocated common fixed expenses* Total fixed expenses 410,600 121,400 168,100 121,100 Net operating income (loss) S 39,400 24,600 39,900 S (25,100) 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.) Difference: Net Operating Income Increase or (Decrease) Total If Current Total Racing Bikes Are Dropped Contribution margin (loss) Fixed expenses Total fixed expenses Net operating income (loss)

Explanation / Answer

Req 1: Curent Discontinued Net Increase/(decrease) Sales revenue 920000 669000 -251000 Less: Variable cost 470000 315000 155000 Contribution margin 450000 354000 -96000 Fixed expense: Advertising expense 69200 48900 20300 Depreciation 43400 43400 0 Ssalary of product line manager 114000 78900 35100 Allocated common fixed expense 184000 184000 0 Total Fixed expense 410600 355200 55400 Net operating income/(loss) 39400 -1200 -40600 Hence, Racing Bike shall not be discontinued SEGMENT-WISE INCOME STATEMENT TOTAL Dirt Bikes Mountain racing bikes AMOUNT $ AMOUNT $ AMOUNT $ AMOUNT $ Sales Revenue 920,000 261,000 408,000 251,000 Less: variable cost 470,000 115,000 200,000 155,000 Contribution margin 450,000 146,000 208,000 96,000 Less: Trceable expense Advertising 69,200 8,300 40,600 20,300 Depreciation 43,400 20,600 7,300 15,500 Salary of product line manager 114,000 40,300 38,600 35,100 Total Traceable fixed cost 226,600 69,200 86,500 70,900 SEGMENT MARGIN 223,400 76,800 121,500 25,100 Less: Common Fixed cost 184,000 Net Operating Income 39,400 Yes, Segmented income statement is more usable

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