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 $ 929,000 461,000 468,000 Dirt Bikes $ 262,000 110,000 152,000 Mountain Bikes $ 408,000 198,000 210,000 Racing Bikes $ 259,000 153,000 106,000 20,300 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) 15, 200 69,000 43,400 115,500 185,800 413,700 $ 54,300 8,300 20,800 41,000 52,400 122,500 $ 29,500 40,400 7,400 38,000 81,600 167,400 $ 42,600 36,500 51,800 123,800 $ (17,800) "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 properly 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. Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No