The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun

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 Racing Bikes $931,000 $ 269,000 $410,000 252,000 Dirt Bikes Total Bikes Sales 473,000 116,000 206,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses 151,000 458,000 153,000 204,000 101,000 40,600 7,800 38,200 82,000 69,400 43,400 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,300 20,400 15,200 40,500 186,200 53,800 20,500 15,200 36,500 50,400 Total fixed expenses 414,200 123,000 168,600 122,600 Net operating income (loss) $ 43,800 30,000 35,400 $ (21,600) 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.)

Explanation / Answer

1a Current Total Total IfRacing BikesAre Dropped Difference: NetOperatingIncome Sales 931000 679000 -252000 Variable manufacturing and selling expenses 473000 322000 151000 Contribution margin (loss) 458000 357000 -101000 Fixed expenses: ,Advertising, traceable 69400 48900 20500 Depreciation on special equipment 43400 43400 0 Salaries of product managers 115200 78700 36500 Common allocated costs 186200 186200 0 Total fixed expenses 414200 357200 57000 Net operating income (loss) 43800 -200 -44000 b No 2a Total Dirt Bikes Mountain Bikes Racing Bikes Sales 931000 269000 410000 252000 Variable manufacturing and selling expenses 473000 116000 206000 151000 Contribution margin (loss) 458000 153000 204000 101000 Traceable fixed expenses: ,Advertising, traceable 69400 8300 40600 20500 Depreciation on special equipment 43400 20400 7800 15200 Salaries of product managers 115200 40500 38200 36500 Total traceable fixed expenses 228000 69200 86600 72200 Product line segment margin 230000 83800 117400 28800 Common fixed expenses 186200 Net operating income (loss) 43800 b Yes

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.