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 | ) | ||||||
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*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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