Exercise 12-2 Dropping or Retaining a Segment (LO12-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 921,000 $265,000 $ 403,000 $ 253,000 464,000 114,000 195,000 155,000 457,000 151,000 208,000 98,000 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) 68,700 8,300 40, 100 20,300 44,300 20,900 7,900 15,500 114,500 40, 700 38,800 35,000 184,200 53,000 80,600 50,600 411,700 122,900 167,400 121,400 $ 45,300 $ 28,100 $ 40,600 $ (23,400) *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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter $ 24,200 Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in ass run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) 0 0 0 0 Traceable fixed expenses: Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) $ o 0 $ 0 $ 0 Net operating income (loss) $ 0