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.

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. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes