Exercise 12-2 Dropping or Retaining a Segment [L012-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a Dirt Mountain Racing S 917,000 $262,000 $400,000 $255.000 racing bike. Data on sales and expenses for the past quarter follow: Total Bikes Bikes Bikes Sales Variable manufacturing and selling expenses 482,000 ,000 206,000 159,000 Contribution margin 435,000 145,000 194,000 96,000 Fixed expenses: Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 69,800 43,300 114,800 183,400 8,500 20,300 40,600 52.400 40,600 7,200 38,500 80,000 20,700 15,800 35,700 51,000 Total fixed expenses 411,300 121,800 166,300 123,200 Net operating income (loss) $ 23,700 23,200 27,700 (27,200) 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: a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.) Total If Operating Income Increase or Current Total Racing Bikes Are Contribution margin (loss) Fixed expenses Total fixed Net operating income (loss) 1b. Should production and sale of the racing bikes be discontinued? O Yes O No 2a. Prepare a segmented income statement. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Net operating income (loss) 2b. Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines. O Yes O No