Exercise 11-2 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: Dirt Mountain Racing Total Bikes Bikes Bikes $920,000 $269,000 $ 401,000 $ 250,000 481,000 120, eee 284, eee 157, eee 439,000 149,000 197, eee 93,000 68,9ee 8,200 40, 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) 20, 4ee 15,500 43,200 20, 200 7,500 114,800 40, eee 38,5ee 36,300 184, eee 53,800 410,900 122,200 $ 28,100 $ 26,800 $ 89, 209 se, eee 166,500 122,200 30,500 $(29, 200) "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. 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)