Chapter 11 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 rac- ing bike. Data on sales and expenses for the past quarter follow: EXERCIS Dirt Mountain Imperial Total Racing Bikes Bikes Bikes says that $300,000 $90,000 $150,000 $60,000 Sales . . . 120,000 27,000 Variable manufacturing and selling expenses . 60,000 33,000 180,000 63,000 90,000 27,000 Contribution margin ... Fixed expenses: 30,000 10,000 14,000 6,000 Advertising, traceable 23,000 6,000 The Depreciation of special equipment 9,000 8,000 35,000 lets 12,000 Salaries of product-line managers . 13,000 10,000 app 60,000 Allocated common fixed expenses* 18,000 30,000 12,000 ers 148,000 46,000 WO 66,000 36,000 Total fixed expenses .. ... $ 32,000 $17,000 Net operating income (loss) . . $ 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 recommenda- tion 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? of racing bikes