2 Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] The Regal Cycle Company manufactures three...

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2 Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Dets on sales and expenses for the past quarter follow Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated commen fixed expenses Total fixed expenses Net operating income (loss) Allocated on the basis of sales dolars Total $316,000 Dirt Bikes 263,00 Mountain 140,000 Racing Bikes 1252,000 477-096 110,000 69,900 8,900 44,108 20,900 44,600 7,700 113,708 48,100 38,500 15,500 35, 183,200 52,500 30,200 58,400 10,900 $33,100 122,500 16/100 121306 $ 21,500 35,900 5 (24.300) 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. 2 Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Dets on sales and expenses for the past quarter follow Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated commen fixed expenses Total fixed expenses Net operating income (loss) Allocated on the basis of sales dolars Total $316,000 Dirt Bikes 263,00 Mountain 140,000 Racing Bikes 1252,000 477-096 110,000 69,900 8,900 44,108 20,900 44,600 7,700 113,708 48,100 38,500 15,500 35, 183,200 52,500 30,200 58,400 10,900 $33,100 122,500 16/100 121306 $ 21,500 35,900 5 (24.300) 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.