Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2] 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 $ 930,000 470,000 460,000 $ 268,000 113,000 155,000 Mountain Bikes $ 404,000 198,000 206,000 Racing Bikes $ 258,000 159,000 99,000 69,000 8,200 40,300 20,500 43,600 20,600 7,400 15,600 114,800 40,100 38,200 36,500 186,000 53,600 80,800 51,600 413,400 122,500 166,700 124,200 $ 46,600 $ 32,500 $ 39,300 $ (25,200) 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? 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.