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: 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) *Allocated on the basis of sales dollars. Total $ 932,000 471,000 Dirt Bikes 461,000 $ 265,000 117,000 148,000 Mountain Bikes $ 408,000 201,000 Racing Bikes $ 259,000 153,000 207,000 106,000 70,100 8,600 40,900 20,600 44,400 20,900 7,700 15,800 114,900 40,800 38,400 35,700 186,400 53,000 81,600 51,800 415,800 123,300 168,600 123,900 $ 45,200 $ 24,700 $ 38,400 $ (17,900) 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 properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.