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The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data o 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 o sales and expenses for the past quarter follow n Dirt Mountain Racing Total Bikes Bikes Bikes Sales 931,000 266,000 407,000 258,000 Variable manufacturing and selling expenses 474,000 120,000 197,000 157,000 Contribution margin 457,000 146,000 210,000 101,000 Fixed expenses Advertising, traceable 69,100 8,300 40,300 20,500 Depreciation of special equipment 43,800 20,800 7,200 15,800 Salaries of product-line managers 115,900 40,800 38,600 36,500 Allocated common fixed expenses 186,200 53,200 81,400 51,600 Total fixed expenses 415,000 123,100 167,500 124,400 42,000 22,900 42,500 (23,400) 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 n o 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 operating Current Total Racing Bikes Income Are Dropped Increase or (Decrease) 0 0 Contribution margin (loss) Fixed expenses: 0 0 Total fixed expenses 0 0 0 Net operating income (loss)
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