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) *Allocated on the basis of sales dollars. Total $ 920,000 482,000 438,000 Dirt Bikes $ 263,000 117,000 146,000 Mountain Bikes $ 404,000 209,000 195,000 Racing Bikes $ 253,000 156,000 97,000 68,900 8,700 40,100 20,100 44,400 20,600 7,800 16,000 115,200 40,700 38,200 36,300 184,000 52,600 80,800 50,600 412,500 122,600 166,900 123,000 $ 25,500 $ 23,400 $ 28,100 $ (26,000) 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? > Required 1 Required 2 > 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 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. Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0 < Required 2 Required 3 >