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. Total Dirt Mountain Bikes Bikes Racing Bikes Sales Variable manufacturing and selling Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating incone (loss) "Allocated on the basis of sales dollars. $923,000 $261,000 $403,000 $ 259,000 472,000 119,000 193,000 160,000 451,000 142,000 210,000 99,000 68,700 8,200 40,300 20,200 43,600 20,600 7,200 15,800 115,300 40,800 39,000 35,500 184,600 412,200 52,200 80,600 121,000 167,100 123,300 51,800 5 38,800 5 20,200 $42,900 $(24,300) 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.