cricket LTE 02:28 ezto.mheducation.com Chapter 12 Homewonk Question 1 (of 2) 75.

Question

cricket LTE 02:28 ezto.mheducation.com Chapter 12 Homewonk Question 1 (of 2) 75.00 points 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 Total Bikes 929,000 $ 267,000 $405,000 $257,000 469,000 114,000 197,000 158,000 Sales Variable manufacturing and seling expenses Contribution margin Fixed expenses: 460,000 153,000 208.000 99,000 Advertising, traceable 69,600 43,500 114,300 8,300 20.400 40,800 85,800 53,400 40,300 7,600 38.400 81,000 21,000 15,500 35,100 51,400 Allocabed common foxed expenses Total fixed expenses Net operating income (loss) 13,200 22,900 167.300 123,000 S 46,800 30,10040,700 (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.)

Explanation / Answer

1.a. Impact on NOI discontinuing racing bike Current Total Total if Racing Bike is dropped Difference Sales 929000 672000 -257000 VM&s exp. 469000 311000 158000 Contribution 460000 361000 -99000 Fixed expenses: Advertising traceble 69600 48600 21000 Depn.of special equipment 43500 43500 0 Salaries of product-line managers 114300 79200 35100 Allocated common fixed expenses 185800 185800 0 Total fixed expenses 413200 357100 56100 NOI 46800 3900 -42900 1b. NO. Overall NOI decreases if racing bike line is dropped 2.a.. Totals Dirt Bikes Mountain bikes Racing bikes Sales 929000 267000 405000 257000 VM&s exp. 469000 114000 197000 158000 Contribution 460000 153000 208000 99000 Traceable Fixed expenses: Advertising traceble 69600 8300 40300 21000 Depn.of special equipment 43500 20400 7600 15500 Salaries of product-line managers 114300 40800 38400 35100 Total traceable Fixed expenses 227400 69500 86300 71600 Segment NOI 232600 83500 121700 27400 Less: Common fixed expenses 185800 NOI 46800 2 .b. YES

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