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: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 920,000 $ 261,000 $ 404,000 $ 255,000 Variable manufacturing and selling expenses 469,000 112,000 201,000 156,000 Contribution margin 451,000 149,000 203,000 99,000 Fixed expenses: Advertising, traceable 69,600 8,100 40,800 20,700 Depreciation of special equipment 43,600 20,600 7,500 15,500 Salaries of product-line managers 114,300 40,800 38,000 35,500 Allocated common fixed expenses* 184,000 52,200 80,800 51,000 Total fixed expenses 411,500 121,700 167,100 122,700 Net operating income (loss) $ 39,500 $ 27,300 $ 35,900 $ (23,700) *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 li ne 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.