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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
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 Bikes Bikes Total $919,000 $264,000 $402.000 $253,000 Sales Variable manufacturing and selling expenses 479,000 1,000 209,000 151,000 Contribution margin Fixed expenses: 440,000 145,000 193,000 102.000 40,400 7,800 38,200 00 69,500 8,200 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 43,800 20,700 115,300 183,800 20,900 15,300 36,500 50,600 40,600 52,800 36 80.4 Total fixed expenses 412.400 22,300 166,800 123,300 Net operating income (loss) $ 27,600 22,700 26,200 (21,300) 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: a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.) Total If Racing Bikes Are Dropped Operating Income Increase or (Decrease) Current Total Contribution margin (loss) Fixed expenses: Total fixed Net operating income (loss)
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