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Exercise 13-2 (Algo) Dropping or Retaining a Segment (LO13-2) The Regal Cycle Company manufactures three types of bicycles- dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow Sale 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 (los) Dirt Mountain Racing Total Bikes Bikes Bikes $931,000 $269,000 $408.000 $ 254,000 482,000 117,000 209,000 156.000 152,000 199,000 98,000 69,700 3.700 40,600 20,400 44,100 21.000 17.900 15,200 115.100 40.200 38,100 36.800 186,200 53,00 81,600 50,800 415,100 122,700 168,200 123,200 $33,900 5 28,300 $ 30,800 $(25,200) "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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required Required 2 > Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? OYes ONO Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: 0 0 0 0 0 0 Total traceable fixed expenses Product line segment margin (loss) 0 0 0 $ 0 $ 0 Net operating income (loss) 0