Question
The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the
The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:
TotalDirt
BikesMountain BikesRacing
BikesSales$925,000$263,000$410,000$252,000Variable manufacturing and selling expenses462,000112,000194,000156,000Contribution margin463,000151,000216,00096,000Fixed expenses:Advertising, traceable69,2008,30040,40020,500Depreciation of special equipment43,30020,3007,70015,300Salaries of product-line managers115,10041,00038,30035,800Allocated common fixed expenses*185,00052,60082,00050,400Total fixed expenses412,600122,200168,400122,000
Net operating income (loss)$50,400$28,800$47,600$(26,000)
*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:
1a. What is the impact on net operating income by discontinuing racing bikes?(Decreases should be indicated by a minus sign.)
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