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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:

		Total		Dirt Bikes		Mountain Bikes		Racing Bikes
Sales	$	925,000	$	267,000	$	404,000	$	254,000
Variable manufacturing and selling expenses		471,000		114,000		197,000		160,000
Contribution margin		454,000		153,000		207,000		94,000
Fixed expenses:
Advertising, traceable		69,700		8,700		40,200		20,800
Depreciation of special equipment		44,000		20,700		7,500		15,800
Salaries of product-line managers		115,100		40,400		38,300		36,400
Allocated common fixed expenses*		185,000		53,400		80,800		50,800
Total fixed expenses		413,800		123,200		166,800		123,800
Net operating income (loss)	$	40,200	$	29,800	$	40,200	$	(29,800)

*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?

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: Dirt Mountain Racing Bikes $925,000 S267,000 $ 404,000 254,000 Total Bikes Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: 471,000 114,000 197,000 160,000 454,000 153.000 207,000 94,000 69,700 44,000 115,100 185,000 8,700 20,700 40,400 53,400 40,200 7,500 38,300 80,800 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 20,800 15,800 36,400 50,800 Total fixed expenses 413,800 123,200 166,800 123,800 Net operating income (loss) S 40,200 S 29,800 S 40,200 S (29,800) 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 f Racing Operating Income Difference: Net Current Total Bikes Are Dropped Increase or Decrease Contribution margin (loss) Fixed expenses: Total fixed expenses Net operating income (loss)

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