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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: Dirt Racing Mountain Total Bikes Bikes Bikes 920.000 268,000 401,000 251,000 Sales Variable manufacturing and selling expenses 459,000 114,000 192,000 153,000 461,000 154,000 209,000 98,000 Contribution margin Fixed expenses: 40,900 Advertising, traceable 69,900 8,800 20,200 Depreciation of special equipment 43,900 20.800 7.200 15.900 36,400 Salaries of product-line managers 15.100 40,200 38,500 Allocated common fixed expenses" 184,000 53,600 80,200 50.200 Total fixed expenses 412,900 123,400 166,800 122,700 48,100 30,600 200 (24,700) 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 value and does not wear out. Required la. 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 Operating Income Bikes Are Current Total ncrease or Dropped (Decrease) Sales Variable manufacturing and selling expenses 0 0 Contribution margin (loss) Fixed expenses. Depreciation on special equipment Advertising, traceable Common allocated costs Salaries of product managers 0 0 Total fixed expenses 0 0 0 Net operating income (loss) lb. Should production and sale of the racing bikes be discontinued? Yes
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