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 $ 929,000 479,000 Dirt Bikes $ 267,000 450,000 119,000 148,000 Mountain Bikes $ 403,000 206,000 197,000 Racing Bikes $ 259,000 154,000 105,000 69,700 8,900 40,600 20,200 43,700 20,700 7,900 15,100 114,100 40,500 38,300 35,300 185,800 53,400 80,600 51,800 413,300 123,500 167,400 122,400 $ 36,700 $24,500 $ 29,600 $ (17,400) 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.