Exercise 7-2 Dropping or Retaining a Segment [LO7-2] The Regal Cyde Company manufactures three types of bleydes a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Rong Total $ 300,000 120.000 180.000 Dirt Bikes $ 80.000 27 000 63000 Mountain Bikes $ 150,000 50,000 90,000 Bees $ 60,000 33,000 27,000 Variable manufacturing and selling expenses Contribution margin Fred expenses Advertising, traceable Depreciation of special equipment Salaries of product-ine managers Allocated common foued expenses Total and expenses Net operating income foss) 30.000 23.000 35,000 0.000 148,000 2000 1000g 6.000 12.000 18.000 46,000 $ 17000 14,000 9.000 13 000 30 000 66000 $ 24,000 6,000 8,000 10 000 12.000 36.600 $9,000) "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: 1a. What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign) Current Total Total If Racing Bikes Are Dropped Difference: Net Operating Income Increase or (Decrease) Contribution margin (los) Feed experies Total food expenses Net operating income ons) 0 0 $ MacBoo 16. Should production and sale of the racing bikes be discontinued? Yes O No 2a. Prepare a segmented Income statement. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 Contribution margin (los) Traceable fixed expenses Total traceable foxed expenses 0 0 0 0 0 0 S Os 0 $ $ 0 Net operating income (loss) 2b. Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines Yes O No Hints References eBook & Resources Check my w