Peloton Enterprises has two product lines: road bikes and mountain bikes. Here i

Question

Peloton Enterprises has two product lines: road bikes and mountain bikes. Here is the most recent income statement, broken down by product line: Road bikes Mountain bikes S 163,000 (235,000)(105,000) 58,000 (31,000) $27,000 Total $ 473,000 (340,000) 133,000 (75,000) $58,000 310,000 Sales revenue Variable costs Contribution margin 75,000 (44,000) $31,000 Fixed costs Operating income Peloton plans to discontinue the production and sale of road bikes, and use the resulting freed-up capacity to triple the production and sale of mountain bikes, from 1,000 units per year to 3,000 units per year. The change in product mix will have no effect on fixed costs. If Peloton discontinues the oad bikes product line, how would this impact Peloton's operating income?

Explanation / Answer

Incremental contribution=58*2000=116000

Lost of road bikes contribution =(75000)

Net incremental contribution or profit=41000

Fixed cost is irrelevant  

Option d is correct.

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