Exercise 11-2 Dropping or Retaining a Segment [L011-2] 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: Dirt Mountain Racing Bikes Total Bikes Bikes 918,000 $261,000 406,000 $ 251,000 157,000 94,000 Sales Variable manufacturing and selling 473,000 118,000 198,000 expenseS Contribution margin Fixed expenses: 445,000 143,000 208,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 40,600 7,400 38,000 81,200 412,400 121,700 167,200 69,900 8,500 44,100 20,900 114,800 40,100 52,200 20,800 15,800 36,700 50,200 123, 500 21,300 40,800 $(29,500) 183,600 Total fixed expenses Net operating income (loss) $ 32,600 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 1Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Required 1 Required 2 Required 1Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes ONo Required 1 Required 3 Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss) Required 2 Required 3