EXERCISE 7-2 Dropping or Retaining a Segment L 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: Mountain Bikes Racing Bikes $60,000 Total $300,000 Dirt Bikes $90,000 $150,000 27,000 120,000 180,000 60,000 90,000 33,000 27.000 63,000 30,000 10,000 14,000 6,000 23,000 6,000 9,000 8,000 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)..... "Allocated on the basis of sales dollars. 35,000 12,000 13,000 10,000 60,000 148,000 $ 32,000 18,000 46,000 $17.000 30,000 66,000 $ 24,000 12.000 36,000 $ 9,000) 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. Should production and sale of the racing bikes be discontinued? Explain. Show computations to support your answer. 2. Recast the above data in a format that would be more usable to management in assessing the long-run profitability of the various product lines