2. value: 12.50 points Exercise 10-2 Dropping or Retaining a Segment [LO10-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 300,000 $ 90,000 $150,000 $ 60,000 120,000 27,000 60,000 33,000 180,000 63,000 90,000 27,000 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 (loss) 30,000 10,000 14,000 6,000 23,000 6,000 9,000 8,000 35,000 12,000 13,000 10,000 60,000 18,000 30,000 12,000 148,000 46,000 66,000 36,000 $ 32,000 $ 17,000 $ 24,000 $ (9,000) *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: 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.) Current Total Total If Racing Bikes Are Dropped Difference: Net Operating Income Increase or (Decrease) Contribution margin (loss) Fixed expenses: Total fixed expenses Net operating income (loss) 16. Should production and sale of the racing bikes be discontinued? Yes No 2a. Prepare a segmented income statement. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Net operating income (los) 2b. Would a segmented income statement format be more usable to management in assessing the long- run profitability of the various product lines. Yes No