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 Total Bikes Bikes Bikes $927,000 $268.000 $ 407,00 $ 252,000 478,000 114,00 209,000 155,000 449,000 154,000 198, one 97.000 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 inconte (loss) 69,400 8,700 40,100 20.600 43,600 20,800 7.500 15.300 115,700 40,400 38,600 36,700 185,400 53.600 B1,400 50,400 414.100 123,500 167/660 123,000 $ 34,900 $ 30,500 $30,400 $(26,000) "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