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 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 Total Bikes Sales $ 931,000 $268,000 Bikes $406,000 Bikes $257,000 Variable manufacturing and selling expenses 464,000 116,000 197,000 151,000 Contribution margin Fixed expenses:" Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses. Total fixed expenses Net operating income (loss) 467,000 152,000 209,000 106,000 69,900 8,800 40,500 20,600 43,300 20,200 7,500 15,600 114,600 40,300 38,700 35,600 186,200 53,600 81,200 51,400 414,000 122,900 167,900 123,200 $ 53,000 $ 29,100 $ 41,100 $(17,200) ht "Allocated on the basis of sales dollars. ences 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.) Current Total Total if Racing Bikes Are Dropped Difference: Net Operating Income Increase or (Decrease) Contribution margin (loss) Fixed expenses:
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