File Edit View History Bookmarks Window Help ezto.mheducation.com Chapter 10 Hom

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File Edit View History Bookmarks Window Help ezto.mheducation.com Chapter 10 Homework 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 DirtMountainRacing Bikes TotalBikes Bikes $ 917,000 262,000 $403,000 $ 252,000 482,000 117,000207,000 158,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: 435,000 145,000196,00094,000 Depreciation of special equipment Salaries of product-line managers Allocated common foxed expenses* 8,200 40,50020,900 7,300 15,400 35,400 183,400 52,400 80,600 50,400 69,600 43,00020,300 113,900 40,000 38,500 Total fixed expenses 409,900 120,900166,900 122,100 Net operating income (loss) $ 25,100 24,100 S 29,100 S (28,100) 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 Total If Racing

Explanation / Answer

Req 1-a Current Total if Difference: Total Racing bikes discontinued Increase/(Decrease) Net Income Sales revenue 917000 665000 -252000 Less: Variable Cost 482000 324000 158000 Contribution margin 435000 341000 -94000 Less: Fixed cost: Advertisement expense 69600 48700 20900 Depreciation 43000 43000 0 Salaries of Product line managers 113900 78500 35400 Allocated common fixed expense 183400 183400 0 Total fixed cost 409900 353600 56300 Net operating income 25100 -12600 -37700 Req 1b: NO, the production line should not be discontinued. Req 2: SEGMENT-WISE INCOME STATEMENT TOTAL DIRT BIKES MOUNTAIN RACING AMOUNT $ AMOUNT $ AMOUNT $ AMOUNT $ Sales Revenue 917,000 262,000 403,000 252,000 Less: Variable cost 482,000 117,000 207,000 158,000 Contribution margin 435,000 350,000 310,000 190,000 Traceable Fixed expense Advertisement 69,600 8,200 40,500 20,900 Depreciaion 43,000 20,300 7,300 15,400 Pproduct line manager salaries 113,900 40,000 38,500 35,400 Total Traceable expense 226,500 68,500 86,300 71,700 SEGMENT MARGIN 208,500 281,500 223,700 118,300 Less: Common Fixed expense 183,400 Net Operating Income 25,100 Req 2-b: YES

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