Exercise 13-2 (Algo) Dropping or Retaining a Segment (LO13-2) 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 $931,000 $267,088 $ 489,800 $-255,800 481,000 114,000 288,000 159,000 450,000 153,668 211,888 96,000 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) 69,400 8,600 40, 700 20, 100 43,700 20,600 7,600 15,500 114,300 40,100 38,400 35,800 186,200 53,400 81,800 51,000 413,600 122,700 168,500 122,400 $36,400 $ 30,300 $ 32,500 $126,400) "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