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 $ 918,000 $262,000 $ 401,000 $ 255,000 462,000 110,000 200,000 152,000 456,000 152,000 201,000 103,000 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) 7,900 69,800 8,400 41,000 20,400 44,100 20,600 15,600 114,300 40,300 38,500 35,500 183,600 52,400 80,200 51,000 411,800 121,700 167,600 122,500 $ 44,200 $ 30,300 $ 33,400 $(19,500) *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