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 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) "Allocated on the basis of sales dollars. Total $921,000 Dirt Bikes $263,000 Mountain Bikes $ 402,000 469,000 111,000 452,000 152,000 204,000 198,000 Racing Bikes $256,000 154,000 102,000 69,700 8,500 40,700 20,500 43,300. 20,500 7,500 15,300 114,400 40,600 38,200 35,600 184,200 52,600 80,400 51,200 411,600 122,200 166,800 122,600 $ 40,400 $ 29,800 $31,200 $ (20,600) 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 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 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) Total $ 921,000 Dirt Bikes $263,000 111,000 Mountain Bikes $ 402,000 204,000 Racing Bikes $256,000 154,000 469,000 452,000 152,000 198,000) 102,000 69,700 8,500 40,700 20,500 43,300 20,500 7,500 15,300 114,400 40,600 38,200 35,600 184,200 52,600 88,400 51,200 411,600 122,200 $40,400 $ 29,800 166,800 $31,200 122,600 $ (20,600) "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: 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 Complete this question by entering your answers in the tabs below. Required 11 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 segmont margin (loss) Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0