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) Total $930,000 Dirt Mountain Racing Bikes Bikes Bikes $268,000 $406,000 $256,000 467,000 112,000 199,000 156,000 463,000 156,000 207,000 100,000 70,000 8,700 40,300 21,000 43,600 20,500 7,300 15,800 115,600 40,100 39,000 36,500 186,000 53,600 81,200 51,200 415,200 122,900 167,800 124,500 $ 47,800 $ 33,100 $ 39,200 $(24,500) *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