ANALYZE EACH ANSWER

EXERCISE 13-2 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. Data on Page 601 sales and expenses for the past quarter follow: 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. E13-2 1) 2) No, the production should not be stopped. 3) Traceable fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) 60,00032,000