Exerclse $11\mathrm{.}2($Algo$)$ Dropping or Retalning a Segment $[$LO$11-2]$

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:

AAlocated 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 discont$/$nued$.$ The speclal equlpment used to produce racling bikes has no resale value and does not wear out.

Required:

Required:

$2$ Should the production and sale of racing bikes be discontinued?

Prepare a properly formatted segmented income statement that would be more useful to management in assessing the long$-$run

profitability of the varlous product lines.

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What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

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Should the production and sale of racing bikes be discontinued?

Yes

No

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