e Regal Cyc bike. Data on sales and expenses for the past quarter follow: ompany

Question

e Regal Cyc bike. Data on sales and expenses for the past quarter follow: ompany manura ctures three types of bicycles--a dirt bike, a mountain bike, and a racing Mountain Racing Total Sales $925,000 $ 265,000 409,000 $ 251,000 470,000 118,000 200,000 152,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses 455,000 147,000 209,000 99,000 68,900 43,300 114,200 185,000 8,100 20,700 40,600 53,000 40,300 7,200 38,200 81,800 20,500 15,400 35,400 50,200 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses 411,400 2400 167,500 121,500 Net operating income (loss) $ 43,600 24,600 41,500 (22,500) 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 Op erating Income Current Total Increase or Decrease) Contribution margin (loss) Fixed expenses Total fixed expenses Net operating income (loss) 1b. Should production and sale of the racing bikes be discontinued? O Yes No

Explanation / Answer

Current total total if racing bikes are dropped Diff Increase or Decrease Sales 925000 674000                            (251,000.00) Variable cost 470000 318000                            (152,000.00) Conribution 455000 356000                              (99,000.00) Fixed Expenses Advertisement 68900 48400                              (20,500.00) Depreciation 43300 27900                              (15,400.00) Salary 114200 78800                              (35,400.00) Common Fixed expenses 185000 185000                                     -    Total Fixed expenses 411400 340100                              (71,300.00) Net Operating Income 43600 15900                              (27,700.00) 1(b) No, should not be continued 2(a) Total Dirt Bikes Mountain Bikes Racing Bikes Sales 925000 265000 409000 251000 Variable cost 450000 118000 200000 152000 Conribution 455000 147000 209000 99000 Traceable Fixed Expenses Advertisement 68900 8100 40300 20500 Depreciation 43300 20700 7200 15400 Salary 114200 40600 38200 35400 Total Traceable Fixed Expenses 226400 69400 85700 71300 228600 77600 123300 27700 Common Fixed Expenses 185000 Net Operating Income 43600 2(b) Yes

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