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Exercise 12-2 Dropping or Retaining a Segment LO12-2] 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: Dirt Mountain Racing Bikes Total Bikes Bikes Salcs Variable manufacturing and selling $300,000 $ 90,000 150,000 $ 60,000 120,000 27,000 60,00 180,000 63,000 33,000 expenBeB contribution margin Fixed expenses: Advertising, t:r traceable 30,000 10,000 14,000 23,0006,000 35,000 12,000 60,000 18,000 6,000 8, 000 10,000 12,000 Depreciation of special equipment 9,000 13,000 Salarics of product-line managers Allocated coumon fixed expenses Total fixed expenses Net operating income (loss) 3U 148,000 46,000 32,000 17,000 24,000 (9,000) 66,000 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. Complete this question by entering your answers in the tabs below RquiredReq uired 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes