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 $ 916,000 $262,000 $ 404,000 $ 250,000 462,000 115,000 191,000 156,000 454,000 147,000 213,000 94,000 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 income (loss) 69,600 8,500 40,400 20,700 43,600 20,700 7,200 15,700 114,500 40,200 38,700 35,600 LOS, 200 52,400 80,800 50,000 410,900 121,800 167,100 122,000 $ 43,100 $ 25,200 $ 45,900 $(28,000) *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