i Chrome File Edit ie History Bookmarks People Window Help Garrison CH 12 Exerci

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i Chrome File Edit ie History Bookmarks People Window Help Garrison CH 12 Exercises l@ ezto.mheducation.com/hm.tpx D, Sun 1:53 PM a E 4.28 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 Bikes $926,000 $265,000 S 404,000 257,000 479,000 113,000 208,000 158,000 Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: 447,000 152,000 196,000 99,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expens 20,200 15,900 36,700 185,200 53,000 80,800 51,400 68,900 43,700 116,300 8,400 20,100 40,700 40,300 7,700 38,900 Total fixed expenses 14,100 122,200 167,700 124,200 Net operating income (loss) $ 32,900 29,800 S 28,300 (25,200) PM 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 PM indicated by a minus sign.) Net Total If Current Total Racing Bikes Are Dropped Increase or df Contribution margin (lcss) Fxed expenses 5

Explanation / Answer

1a Current Total Total If Racing BikesAre Dropped Difference: Net Sales 926000 669000 -257000 Variable manufacturing and selling expenses 479000 321000 158000 Contribution margin (loss) 447000 348000 -99000 Fixed expenses: Advertising, traceable 68900 48700 20200 Depreciation of special equipment 43700 43700 0 Salaries of the product line managers 116300 79600 36700 Common allocated costs 185200 185200 0 Total fixed expenses 414100 357200 56900 Net operating income (loss) 32900 -9200 -42100 b No 2a Totals Dirt Bikes Mountain Bikes Racing Bikes Sales 926000 265000 404000 257000 Variable manufacturing and selling expenses 479000 113000 208000 158000 Contribution margin (loss) 447000 152000 196000 99000 Traceable fixed expenses: Advertising, traceable 68900 8400 40300 20200 Depreciation of special equipment 43700 20100 7700 15900 Salaries of the product line managers 116300 40700 38900 36700 Total traceable fixed expenses 228900 69200 86900 72800 Product line segment margin 218100 82800 109100 26200 Common fixed expenses 185200 Net operating income (loss) 32900 2b Yes

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