The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a moun

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 past quarter follow Dirt Mountain Racing Bikes $916,000 $ 261,000 $402,000 253,000 465,000 117,000 193,000 155,000 Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: 451,000 44,000 209.000 98,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 70,800 43,900 113,600 183,200 9,000 20,700 40,200 52,200 40,800 7.900 38,300 80,400 21,000 15,300 35,100 50,600 Total fixed expenses 411,500 122,100 167.400 22,000 Net operating income (loss) $ 39,500 21,900 $ 41,600 S (24,000) 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.) Difference: Net Total If Racing Bikes Are Dropped Operating Income Increase or Current Total (Decrease) Contribution margin (loss) Fixed expenses: Total fixed expenses Net operating income (loss)

Explanation / Answer

1a Current Total Total If Racing Bikes Are Dropped Difference: NetOperatingIncome Sales 916000 663000 -254000 Variable manufacturing and selling expenses 465000 310000 155000 Contribution margin (loss) 451000 353000 -99000 Fixed expenses: Advertising, traceable 70800 49800 21000 Depreciation on special equipment 43900 43900 0 Salaries of product manager 113600 78500 35100 Common allocated costs 183200 183200 0 Total fixed expenses 411500 355400 56100 Net operating income (loss) 39500 -2400 -42900 1b No 2a Total Dirt Bikes Mountain Bikes Racing Bikes Sales 916000 261000 402000 253000 Variable manufacturing and selling expenses 465000 117000 193000 155000 Contribution margin (loss) 451000 144000 209000 98000 Traceable fixed expenses: Advertising, traceable 70800 9000 40800 21000 Depreciation on special equipment 43900 20700 7900 15300 Salaries of product manager 113600 40200 38300 35100 Total traceable fixed expenses 228300 69900 87000 71400 Product line segment margin 222700 74100 122000 26600 Common fixed expenses 183200 Net operating income (loss) 39500 2b Yes

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.