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 $ 924,000 471,000 Dirt Bikes $ 262,000 Mountain Bikes 116,000 453,000 146,000 199,000 205,000 $ 404,000 Racing Bikes $ 258,000 156,000 102,000 69,800 8,700 41,000 20,100 43,500 20,300 7,400 15,000 115,600 40,800 38,200 36,600 184,800 52,400 80,800 51,600 413,700 122,200 167,400 124,100 $ 39,300 $ 23,800 $ 37,600 $ (22,100) 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.