Required: (Please show your work/Explain how you got the answers)

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.

Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2] 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 Total Bikes Bikes $931,000 $268,000 $ 406,000 $ 257,000 472,000 113,000 203,000 156,000 459,000 155,000 203,000 101,000 69,600 43,300 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) 8,400 20,200 40,600 7,800 20,600 15,300 1 BA 114,900 40,600 38,900 35,400 186,200 53,600 414,000 122,800 $ 45,000 $ 32,200 $ 81,200 51,400 168,500 122,700 34,500 $(21,700) *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