Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2]

Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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 5928, eee 464,000 464,800 Dirt Bikes $ 267,280 117.ee 150,000 Mountain Bikes $.402,600 197,000 205, eee Racing Bikes $ 259,000 150.000 199,000 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) 69,800 43,880 114,900 185,600 414,100 $ 49,900 8,480 20,300 41,000 53,400 123,100 $ 26,900 40, 500 7,700 38, eee 80,480 166,600 $ 38,400 20,900 15,800 35,900 51, see 124,400 $ (15,400) "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: 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 property formatted segmented income statement that would be more useful to management in assessing the long run profitability of the various product lines. Complete this question by entering your answers in the tabs below