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 $ 926,000 474,000 452,000 Dirt Bikes $ 264,000 112,000 152,000 Mountain Bikes $ 406,000 210,000 Racing Bikes $ 256,000 152,000 196,000 104,000 69,700 8,900 40,600 20,200 44,100 20,700 7,800 15,600 115,200 40,400 38,500 36,300 185,200 52,800 81,200 51,200 414,200 122,800 168,100 123,300 $ 37,800 $ 29,200 $ 27,900 $ (19,300) 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