2 11 points Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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: 00:45:31 Sales Variable manufacturing and selling Contribution margin Fixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Set operating income (loss) "Allocated on the basis of sales dollars. Dirt Mountain Racing Total Bikes Bikes Bikes $926,000 $262,000 $410,000 $254,000 474,000 117,000 203,000 154,000 452,000 145,000 207,000 100,000 70,100 44.000 8,600 20,900 40,700 20,800 7,000 15,300 115,500 40,300 38,500 36,700 185,200 $2,400 $2,000 50,000 123,600 414,800 122,200 169,000 $ 37,200 $22,800 $ 38,000 $(23,600) 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: 1. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued? 3. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.