The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain...
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Accounting
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 Racing Bikes $931,000 $ 269,000 $410,000 252,000 Dirt Bikes Total Bikes Sales 473,000 116,000 206,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses 151,000 458,000 153,000 204,000 101,000 40,600 7,800 38,200 82,000 69,400 43,400 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,300 20,400 15,200 40,500 186,200 53,800 20,500 15,200 36,500 50,400 Total fixed expenses 414,200 123,000 168,600 122,600 Net operating income (loss) $ 43,800 30,000 35,400 $ (21,600) 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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