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 Dirt Bikes $ 925,000 468,000 457,000 $ 261,000 114,000 147,000 Mountain Bikes $ 405,000 196,000 Racing Bikes $ 259,000 158,000 209,000 101,000 70,400 8,700 40,700 21,000 43,600 20,400 7,800 15,400 115,400 40,900 38,500 36,000 185,000 52,200 81,000 51,800 414,400 122,200 168,000 124,200 $ 42,600 $ 24,800 $ 41,000 $ (23,200) 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?