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) Dirt Mountain Racing Total Bikes Bikes Bikes $ 927,000 $266,000 $ 406,000 $ 255,000 470,000 118,000 199,000 153,000 457,000 148,000 207,000 102,000 69,500 8,900 40,300 20,300 44,700 20,900 8,000 15,800 114,700 40,000 38,500 36,200 185,400 53,200 81,200 51,000 414,300 123,000 168,000 123, 300 $ 42,700 $ 25,000 $ 39,000 $(21,300) "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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3