2 Exercise 11-2 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 2.14 points BOO Dirt Mountain Racing Total Bikes Bikes Bikes $922,000 $265,000 $402,000 $ 255,000 458,000 111,000 195.000 152,000 464,000 154,000 207,000 103,000 Hit 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 Het operating income (los) Bences 69,600 8.400 40.600 20,600 43,400 20,400 7.000 15,200 113.00 60,500 38,200 35,100 184,400 5,000 10.400 51,000 411200122 300 167.000 121.900 $ 52.000 31.700 $ 40,000 $(18,900) "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: 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 ME