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 $ 924,000 462.000 462,000 Dirt Bikes $ 267,000 118,000 249,000 Mountain Bikes $ 403,000 192.000 211.000 Racing Bikes $ 254,000 152,000 102,000 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) 69,600 44,200 114,500 184,800 413, 100 $ 48,900 8,600 20,400 40,000 53,400 122,400 $ 26,600 40,200 8.000 38,200 80,600 167.000 $ 44,000 20,800 15,800 36,300 50.800 123, 700 $ (21,700) "Allocated on the basis of sales dollars. 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