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 $ 923,000 $ 264,000 $ 403,000 $ 256,000 Variable manufacturing and selling expenses 477,000 117,000 204,000 156,000 Contribution margin 446,000 147,000 199,000 100,000 Fixed expenses: Advertising, traceable 69,200 8,800 40,200 20,200 Depreciation of special equipment 43,500 20,300 7,300 15,900 Salaries of product-line managers 115,900 40,700 38,600 36,600 Allocated common fixed expenses* 184,600 52,800 80,600 51,200 Total fixed expenses 413,200 122,600 166,700 123,900 Net operating income (loss) $ 32,800 $ 24,400 $ 32,300 $ (23,900) *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.