Exercise $13-2($Algo$)$ Dropping or Retaining a Segment $[$LO$13-2]$

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:

Total Dirt Bikes Mountain Bikes Racing Bikes

Sales $ $933,000$ $ $267,000$ $ $406,000$ $ $260,000$

Variable manufacturing and selling expenses $472,000117,000204,000151,000$

Contribution margin $461,000150,000202,000109,000$

Fixed expenses:

Advertising, traceable $70,3008,90040,80020,600$

Depreciation of special equipment $43,50020,5007,50015,500$

Salaries of product$-$line managers $115,50040,90038,40036,200$

Allocated common fixed expenses$*186,60053,40081,20052,000$

Total fixed expenses $415,900123,700167,900124,300$

Net operating income $($loss$)$ $ $45,100$ $ $26,300$ $ $34,100$ $ $(15,300)$

$*$Allocated on the basis of sales dollars.

Management is considering discontinuing the racing bikes. The special equipment used to produce racing bikes has no resale value and does not wear out.