Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2]

PLEASE HELP

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 $ 919,000 $ 262,000 $ 405,000 $ 252,000 Variable manufacturing and selling expenses 467,000 118,000 193,000 156,000 Contribution margin 452,000 144,000 212,000 96,000 Fixed expenses: Advertising, traceable 68,800 8,400 40,200 20,200 Depreciation of special equipment 43,500 21,000 7,100 15,400 Salaries of product-line managers 115,100 40,400 38,800 35,900 Allocated common fixed expenses* 183,800 52,400 81,000 50,400 Total fixed expenses 411,200 122,200 167,100 121,900 Net operating income (loss) $ 40,800 $ 21,800 $ 44,900 $ (25,900) *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.