Problem #3 - Dropping or Retaining a Segment 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: 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 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) 30,000 23,000 35,000 60,000 148,000 $ 32,000 10,000 6,000 12,000 18,000 46,000 $ 17,000 14,000 9,000 13,000 30,000 66,000 $ 24,000 6,000 8,000 10,000 12,000 36,000 $ (9,000) 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. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 2. Should the production and sale of racing bikes be discontinued