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: 18 Sales bes 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 $ 916,000 Dirt Bikes Mountain Bikes Racing Bikes $262,000 $ 401,000 $255,000 473,000 445,000 119,000 143,000 198,000 203,000 156,000 99,000 69,400 8,400 40,300 20,700 43,600 20,500 7,500 15,600 114,900 40,700 38,900 35,300 103,600 411,500 52,400 122,000 80,200 51,000 166,900 122,600 $ 33,500 $ 21,000 $ 36,100 $ (23,600) 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.