The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a moun
ID: 2730343 • Letter: T
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:
Mountain
Bikes
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.
What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)
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:
Mountain
Bikes
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.
What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)
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:
Explanation / Answer
1a.
What is the impact on net operating income by discontinuing racing bikes?
Total if Racing Bikes are Dropped
The depreciation of the special equipment is a sunk cost and is therefore not relevant to the decision.
The common costs are already allocated and will continue regardless of whether or not the racing bikes are discontinued, therefore, not relevant to the decision.
The production line should not be discontinued.
What is the impact on net operating income by discontinuing racing bikes?
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