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 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) Diet Mountain Racing BIRMS Dikes Bikes $929,000 $266,000 $ 404,000 $ 259,000 Total 465,000 111,000 202,000 152,000 464,000 155,000 202,000 107,000 69,200 8,200 43,400 20,900 115,500 41,000 40,500 7,400 38,700 35,000 20,500 15,100 185,800 53,200 50,000 51,800 123,200 413,900 123,300 167,400 $ 50,100 $31,700 $ 34,600 5(16,200) "Allocated on the hacle of ealer dollar "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