Exercise $13-2($Algo$)$ Dropping or Retaining a Segment $[$LO$13-2]$

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 follow:

Total Dirt

Bikes Mountain Bikes Racing

Bikes

Sales $ $928,000$ $ $266,000$ $ $409,000$ $ $253,000$

Variable manufacturing and selling expenses $473,000116,000205,000152,000$

Contribution margin $455,000150,000204,000101,000$

Fixed expenses:

Advertising, traceable $69,1008,10040,80020,200$

Depreciation of special equipment $*43,20020,5007,50015,200$

Salaries of product$-$line managers $115,70041,00038,60036,100$

Allocated common fixed expenses$**185,60053,20081,80050,600$

Total fixed expenses $413,600122,800168,700122,100$

Net operating income $($loss$)$ $ $41,400$ $ $27,200$ $ $35,300$ $ $(21,100)$

$*$ The special equipment used to produce racing bikes has no resale value and does not wear out.

$**$ Allocated on the basis of sales dollars.

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?