Exercise 10-2 Dropping or Retaining a Segment [LO10-2]

The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:

| || Save & Exit Sub ? Question 2 (of 5) value 10.00 points Exercise 10-2 Dropping or Retaining a Segment [LO10-2 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 Bikes ikes Sales Variable manufacturing and selling expenses selig expenses278000 $ 928,000 $ 265,000 $406,000 $ 257,000 475,000112,000 205,000 158,000 Contribution margin 453,000153,000 201,000 99,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 9,5008,80040,500 20,200 16,000 14,10040,500 38,200 35,400 185,600 53,00081,200 51,400 44,500 20,500 8,000 Totall fixed expenses Net operating income (loss) 413,700 122.800 167,900 123,000 s39,300 30,200 $ 33, 100 $ (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.) Total If Racing Difference: Net Operating Income Increase or (Decrease) Current Total Dropped Sales 257.000 Variable manufacturing and selling expenses O Type here to search