2023 The Regal Cycle Company manufactures three types of bicycles a dirt bike a mountain bike and a | Assignments Online

2023 The Regal Cycle Company manufactures three types of bicycles a dirt bike a mountain bike and a | Assignments Online

Assignments Online 2023 Business Finance

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:

 

  Total   Dirt
Bikes
  Mountain Bikes   Racing
Bikes
Sales $ 300,000     $ 90,000     $ 150,000     $ 60,000  
Variable manufacturing and selling expenses   120,000       27,000       60,000       33,000  
Contribution margin   180,000       63,000       90,000       27,000  
Fixed expenses:                              
Advertising, traceable   30,000       10,000       14,000       6,000  
Depreciation of special equipment   23,000       6,000       9,000       8,000  
Salaries of product-line managers   35,000       12,000       13,000       10,000  
Allocated common fixed expenses*   60,000       18,000       30,000       12,000  
Total fixed expenses   148,000       46,000       66,000       36,000  
Net operating income (loss) $ 32,000     $ 17,000     $ 24,000     $ (9,000 )

*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.)

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