Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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: 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) *Allocated on the basis of sales dollars. Total Dirt Bikes $ 923,000 463,000 460,000 $ 270,000 117,000 153,000 Mountain Bikes $ 400,000 194,000 206,000 Racing Bikes $ 253,000 152,000 101,000 69,100 8,100 40,400 20,600 43,600 20,400 7,600 15,600 115,900 40,600 38,600 36,700 184,600 54,000 80,000 50,600 413,200 123,100 166,600 123,500 $ 46,800 $ 29,900 $ 39,400 $ (22,500) 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. Check my work 5