EXERCISE 6-2 Dropping or Retaining a Segment L06-2 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: Total $300,000 120,000 180,000 Dirt Bikes $90,000 27.000 63.000 Mountain Bikes $150.000 60,000 90,000 Racing Bikes $60,000 33.000 27,000 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) 30,000 23.000 35,000 60,000 148.000 $ 32,000 10.000 6,000 12.000 18,000 46.000 $ 17,000 14,000 9.000 13,000 30,000 66,000 $ 24,000 6,000 8,000 10,000 12.000 36,000 $19.000) "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