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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 927,000 $268,000 $ 406,000 $ 253,000 478,000 113,000 207,000 158,000 449,000 155,000 199,000 95,000 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) 40,800 7,200 38,400 70,600 9,000 43,300 21,000 114,200 40,800 185,400 53,600 413,500 124,400 35,500 $ 30,600 20,800 15,100 35,000 50,600 121,500 $ (26,500) 167,600 31,400 $ $ *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. 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 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. Totals Totals Dirt Bikes Dirt Bikes Mountain Bikes Mountain Racing Bikes Racing 10000 Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) 0 O 0 0 0 0 0 0 % % % Net operating income (loss) 0