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 $ 918,000 464,000 454,000 Dirt Bikes $ 262,000 111,000 151,000 Mountain Bikes $ 401,000 196,000 205,000 Racing Bikes $ 255,000 157,000 98,000 70,600 9,000 40,600 21,000 43,400 20,400 7,900 15,100 114,500 40,500 38,900 35,100 183,600 52,400 80,200 51,000 412,100 122,300 167,600 122,200 $ 41,900 $ 28,700 $ 37,400 $ (24,200) 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.