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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 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 Racing Mountain Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $ 922,000 5 263,000 $ 409,000 $250,000 206.000 153.000 444.000 144000203,00097 000 Advertising, traceable Depreciation of special equipment Salaries of product-ine managers Allocated common fixed expenses 8,900 20,400 40,600 184 400324000 0,100 42,700 113,900 40,400 7,100 38,200 20,800 15,200 35.100 8180050.000 121,100 52.600 122,500 411,100 167,500 Total fixed expenses Net operating income (loss) 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 valu 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 Total If Racing Bikes Are Operating Income Increase or Current Total Contribution margin (loss) Fixed expenses: Total fixed expenses Net operating income (loss)
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