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 $ 921,000 Dirt Bikes 468,000 453,000 $ 265,000 114,000 151,000 Mountain Bikes $ 404,000 203,000 201,000 Racing Bikes $ 252,000 151,000 101,000 69,800 8,600 40,500 20,700 44,000 20,900 7,900 15,200 114,100 40,300 38,200 35,600 184,200 53,000 80,800 50,400 412,100 122,800 167,400 121,900 $ 40,900 $ 28,200 $ 33,600 $ (20,900) 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.