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 $ 934,000 473,000 461,000 Dirt Bikes $ 268,000 119,000 149,000 Mountain Bikes $ 410,000 199,000 211,000 Racing Bikes $ 256,000 155,000 101,000 68,800 8,500 40,200 20,100 43,400 20,800 7,300 15,300 114,700 40,500 38,100 36,100 186,800 53,600 82,000 51,200 413,700 123,400 167,600 122,700 $ 47,300 $ 25,600 $ 43,400 $ (21,700) 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.