Exercise 11-2 Dropping or Retaining a Segment [LO11-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 924,000 $ 263,000 $ 401,000 $ 260,000 Variable manufacturing and selling expenses 459,000 118,000 191,000 150,000 Contribution margin 465,000 145,000 210,000 110,000 Fixed expenses: Advertising, traceable 69,900 8,700 41,000 20,200 Depreciation of special equipment 44,000 20,500 7,700 15,800 Salaries of product-line managers 114,000 40,200 38,200 35,600 Allocated common fixed expenses* 184,800 52,600 80,200 52,000 Total fixed expenses 412,700 122,000 167,100 123,600 Net operating income (loss) $ 52,300 $ 23,000 $ 42,900 $ (13,600) *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. Prepare a properly formatted segmented income statement that would be more useful to management in assessing the longrun profitability of the various product lines