2.

Exercise 11-2 (Algo) Dropping or Retaining a Segment (LO11-2) 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 $ 930,000 463,000 467,000 Dirt Bikes $ 262,000 112,000 150,000 Mountain Bikes $ 409,000 193,000 216,000 Racing Bikes $ 259,000 158,000 101,000 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 Net operating income (los) 69,100 42,800 113,700 186,000 411,600 $ 55,400 8,300 20,300 40,300 52,400 121,300 $ 28,700 40,500 7,400 38,100 81,800 167,800 $ 48,200 20,300 15,100 35,300 51,800 122,500 $ (21,500) "Allocated on the basis of soles 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: 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3