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 Sales $934,000 $266,000 $409,000 $ 259,000 Variable manufacturing and 478,000 117,000 206,000 155,000 selling expenses Contribution margin 456,000 149,000 203,000 104,000 Fixed expenses: Advertising, 69,000 8, 200 40,700 20,100 traceable Depreciation of special 43,300 20,600 7,300 15,400 equipment Salaries of product-line 116,000 40,900 38,200 36,900 managers Allocated common 186,800 53,200 81,800 51,800 fixed expenses* Total fixed 415,100 122,900 168,000 124, 200 expenses Net operating $ 40,900 $ 26,100 $ 35,000 $ (20, 200) income (loss) *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 assessin the long-run profitability of the various product lines. Complete this question by entering your answers in the tabs below. Required Required Required 1 2 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial (disadvantage) per quarter $ (208,000) Required 1 Required 2 > 1 2 3 Should the production and sale of racing bikes be discontinued? Yes ONO Complete this question by entering your answers in the tabs below. Required Required Required 2 3 1 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 0 0 0 0 Contribution margin (loss) Traceable fixed expenses: 0 0 0 Should the production an Total traceable fixed expenses Product line segment margin (loss) 0 0 $ 0 $ 0 $ 0 Net operating income (loss) $ 0