EXERCISE 7-2 Dropping or Retaining a Segment [LO 7-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Total $300,000 Dirt Bikes $90,000 Mountain Bikes $150,000 Racing Bikes $60,000 120.000 180.000 27,000 63,000 60,000 90,000 33,000 27,000 30,000 10,000 14,000 6.000 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. 23.000 6.000 9.000 8,000 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 $ 19,000) 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