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 $ 926,000 Dirt Bikes $262,000 461,000 118,000 465,000 144,000 Mountain Bikes $ 404,000 190,000 214,000 Racing Bikes $ 260,000 153,000 107,000 69,900 8,700. 40,500 20,700. 43,600 20,600 7,200 15,800 114,600 40,600 38,200 35,800 185,200 52,400 80,800 52,000 413,300 122,300 166,700 124,300 $ 51,700 $ 21,700 $ 47,300 $ (17,300) 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.