2 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 foliow Mountain Racing Bikes Fixed expenses Advertising, traceable Total Dirt Bikes Sales Variable manufacturing and selling expenses Contribution margin 916,000 5 263,000 Bikes 3401,000 1 252,000 472,000 444,000 119,000 144,000 155,000 203,000 69,980 8,900 48,600 20,400 44,108 20,00 7,700 15.508 115,700 40,100 35,00 18),200 52,600 00,200 50,400 4114,900 127,540 10/10 $33,100 $ 21,500 $ 35,900 (24,3001 Depreciation of special equipment Salaries of product-Line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) 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: 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