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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 936,800 $270, eee $ 419,00 $ 256,000 464,800 113,000 198, 299 153,000 472, eee 157, eee 212,880 103,000 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) 69,500 8,888 43, eee 20,400 114,100 40, lee 187,200 54,000 413,800 123,300 $ 58,200 $ 33,700 $ 48,300 20,400 7,480 15, 200 38,280 35,800 82,00 51,200 167,989 122,60e 44,100 $(19,600) *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 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 > Required 1 Required 2 Required 3 Prepare a properly formatted segmented income statement that would be more useful to management in assessing th run profitability of the various product lines. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 Contribution margin (loss) Traceable fixed expenses: 0 0 0 Total traceable fixed expenses Product line segment margin (loss) OO 0 S S 0 S 0 Net operating income (1055) $ 0