EXERCISE $10-2$ Dropping or Retaining a Segment $[$LOI$0-2]$

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:

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:

Should production and sale of the racing bikes be discontinued? Explain. Show computations to

support your answer.

Recast the above data in a format that would be more usable to management in assessing the long$-$run

profitability of the various product lines.