Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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: 50 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 ces Net operating income (loss) "Allocated on the basis of sales dollars. Total $ 923,000 462,000 461,000 Dirt Bikes $ 261,000 112,000 149,000 Mountain Bikes $ 406,000 190,000 216,000 Racing Bikes $256,000 160,000 96,000 69,600 8,500 40,800 20,300 43,700 20,200 7,800 15,700 116,300 40,900 38,500 36,900 184,600 52,200 81,200 51,200 414,200 121,800 168,300 124,100 $ 46,800 $ 27,200 $ 47,700 $ (28,100) 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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Financial advantage (disadvantage) per quarter Required 1 Required 2 > Required 1 Required 2 Required 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. Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 0 $ 0 $ 0 S $ 0 < Required 2 Requered 32