Exercise 11-2 Dropping or Retaining a Segment (L011-2) The Regal Cycle Company manufactures three types of bicycles-adirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Kacing Total Bikes Bikes Bike $ 926,000 $265,000 $ 408,000 $ 253,000 471,000 115.000 203,000 153,000 455,000 150,000 205,000 100,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers Mllocated common fixed expenses Total fixed expenses Net operating income (100) 69,200 8,300 40,200 20.700 43,800 20,400 7.500 15,800 115,500 40,900 38,400 36,200 185,200 53.000 81,600 50, 600 413,700 122,600 167, 1100 123,300 $ 41,300 $ 27,400 37.200 $(23,300) "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