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

Question

The Regal Cydle 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 Bikes Bikes 936,000 $ 270,000 $ 408,000 $ 258,000 Variable manufacturing and selling expenses 454,000 111,000 90,000 153,000 482,000 159,000 218,000 105,000 Total Bikes Sales Contribution margin Fixed expenses: 70,000 43,500 20,900 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,200 40,90020,900 7,20015,400 115,70040,300 38,50036,900 187,200 54,000 81,60051,600 Total fixed expenses 416,400 123,400 168,200124,800 Net operating income (loss) s 65,600 35,600 49,800 $ (19,800) Allocated on the basis of sales dollars. shown by the racing bikes and wants a Management is concerned about the continued losses 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 MacBook Ai

Explanation / Answer

1 Current Total Total IfRacing BikesAre Dropped Difference: NetOperating income Sales 936000 678000 -258000 Variable manufacturing and selling expenses 454000 301000 153000 Contribution margin (loss) 482000 377000 -105000 Fixed expenses: Advertising, traceable 70000 49100 20900 Depreciation on special equipment 43500 43500 0 Salaries of product managers 115700 78800 36900 Common allocated costs 187200 187200 0 Total fixed expenses 416400 358600 57800 Net operating income (loss) 65600 18400 -47200 1b No 2 Total Dirt Bikes Mountain Bikes Racing Bikes Sales 936000 270000 408000 258000 Variable manufacturing and selling expenses 454000 111000 190000 153000 Contribution margin (loss) 482000 159000 218000 105000 Traceable fixed expenses: Advertising, traceable 70000 8200 40900 20900 Depreciation on special equipment 43500 20900 7200 15400 Salaries of product managers 115700 40300 38500 36900 Total traceable fixed expenses 229200 69400 86600 73200 Product line segment margin 252800 89600 131400 31800 Common fixed expenses 187200 Net operating income (loss) 65600 2b Yes

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