Exercise 11-2 Dropping or Retaining a Segment [L011-2] 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: Dirt Bikes Mountain Racing Bikes Total Bikes 60,000 33,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $ 300,000 $ 90,000 $ 150,000 60,000 90,000 120,000 27,000 180,000 63,000 6,000 8,000 10,000 12,000 36,000 $ 32,000 17,000 24,000 (9,000) 14,000 9,000 13,000 30,000 Advertising, traceable 30,000 10,000 6,000 35,000 12,000 60,000 18,000 148,000 46,000 Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 23,000 Total fixed expenses Net operating income (loss) 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