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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 Bikes Mountain Racing Total Bikes Sales $929,000 $ 267,000 $ 404,000 $ 258,000 466,000 114,000 193,000 9,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses 463,000 53,000 211,000 99,000 69,100 44,100 116.300 185,800 8,300 21,000 40,900 53,400 40,400 7,100 38,700 80,800 20,400 16,000 36,700 51,600 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 415,300 123,600 167,000 124,700 Net operating income (loss) S 47,700 29,400 S 44,000 (25,700) 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.) Difference: Net Total If Racing Bikes Are Dropped Operating Income Increase or (Decrease) Current Total Contribution margin (loss) Fixed expenses Total fixed expenses Net operating income (loss)
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