The Regal Cycle Company manufactures three types of bic expenses for the past quarter follow: Mountain Racing Bikes Dirt Bikes $ 266,000 113, еее 153,000 Bikes $ 409,000 203,000 206,e00 Total 929, eee 470, e00 459, e00 $ 254, 000 154, еее 100, e00 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses 70,000 43,700 114,500 185,800 9,e00 20,400 40,500 53,200 40,800 7,800 38,700 81,800 169,100 20, 200 15,500 35,300 50,800 121, 800 414,000 123,100 $ 29,900 Net operating income (loss) $ 45,000 $ 36,900 $ (21,800) "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.

The Regal Cycle Company manufactures three types of bic expenses for the past quarter follow: Mountain Racing Bikes Dirt Bikes $ 266,000 113, еее 153,000 Bikes $ 409,000 203,000 206,e00 Total 929, eee 470, e00 459, e00 $ 254, 000 154, еее 100, e00 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses 70,000 43,700 114,500 185,800 9,e00 20,400 40,500 53,200 40,800 7,800 38,700 81,800 169,100 20, 200 15,500 35,300 50,800 121, 800 414,000 123,100 $ 29,900 Net operating income (loss) $ 45,000 $ 36,900 $ (21,800) "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.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 39P

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The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and aracing bike. Data on sales and expenses for the past quarter follow:Dirt Mountain RacingTotal Bikes Bikes BikesSales ............................................ $300,000 $90,000 $150,000 $60,000Variable manufacturingand selling expenses ................ 120,000 27,000 60,000 33,000Contribution margin ...................... 180,000 63,000 90,000 27,000Fixed expenses:Advertising, traceable ............... 30,000 10,000 14,000 6,000Depreciation of specialequipment ............................. 23,000 6,000 9,000 8,000Salaries of product-linemanagers .............................. 35,000 12,000 13,000 10,000Allocated common fixedexpenses* ............................. 60,000 18,000 30,000 12,000Total fixed expenses .................... 148,000 46,000 66,000 36,000Net operating income (loss) ......... $ 32,000 $17,000 $ 24,000 $ (9,000)*Allocated on the basis of sales dollars.Management is…
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Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $80 per unit. Variable expenses are $40.00 per unit, and fixed expenses total $160,000 per year. Its operating results for last year were as follows: Sales $ 2,160,000 Variable expenses 1,080,000 Contribution margin 1,080,000 Fixed expenses 160,000 Net operating income $ 920,000 Required: Answer each question independently based on the original data: 4-a. What is the degree of operating leverage based on last year's sales? 4-b. Assume the president expects this year's unit sales to increase by 14%. Using the degree of operating leverage from last year, what percentage increase in net operating income will the company realize this year? 5. The sales manager is convinced that a 11% reduction in the selling price, combined with a $72,000 increase in advertising, would increase this year's unit sales by 25%. a. If the sales manager is right, what would be this year's net operating income…
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