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 Bikes Total Bikes Bikes $ 931,000 $266,000 $ 407,000 258,000 Variable manufacturing and selling expenses 472,000 120,000 194,000 158,000 213,000 10999 Sales Contribution margin Fixed expenses: 459,000 146,000 100,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 69,600 8,200 44,000 20,900 114,000 40,600 186,200 53,200 413,800 122,900 20,700 15,300 35,100 51,600 122,700 23,100 $ 44,800 $(22,700) 40,700 7,800 38,300 81,400 168,200 Total fixed expenses Net operating income (loss) $ 45,200 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