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: Bikes Dirt Mountain Racing Total Bikes Bikes $935,000 $269,000 $ 409,000 $ 257,000 471,000 113,000 200,000 158,000 464,000 156,000 209,000 99,000 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) 70,000 8,800 40,700 20,500 43, 100 20,500 7,400 15, 200 115,600 40,100 38,700 36,800 187,000 53,800 81,800 51,400 415, 700 123,200 168,600 123,900 $ 48,300 $ 32,800 $ 40,400 $(24,900) *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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Required 1 Required 2 Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes | Ono Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss) Required 2 Required 3