6 Exercise 12-2 Dropping or Retaining a Segment (LO12-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Dat expenses for the past quarter follow: 1.2 points 8 02:41.26 Dirt Mountain Racing Total Bikes Bikes Bikes $928,000 $263,000 $ 409,000 $ 256,000 473,000 116,000 200,000 157,000 455,000 147,000 209,000 99,000 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) 70,000 9,000 40,700 20,300 43,900 20,700 7,600 15,600 115,400 40,100 38,500 36,800 185,600 52,600 81,800 51,200 414,900 122,400 168,600 123,900 $ 40,100 $ 24,600 $ 40, 400 $(24,900) "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 Return to ques Management is concerned about the continued losses shown by the racing bikes and wants a recommendation as to whether or no 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. Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage per quarter $ 49,800 Required Required 2 > Ret 14 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. Totals Dirt Bikes Mountain Bikes Racing Bikes 3:38 0 0 0 0 Contribution margin (loss) Traceable fixed expenses: 0 0 0 Total traceable fixed expenses Product line segment margin (loss) oo 0 $ S 0 $ 0 Net operating income (loss) 0