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 Mountain Racing Bikes Total Bikes Bikes Sales Variable manufacturing and selling $931,000 $269,000 404,000 $ 258,000 156,000 471,000 114,000 201,000 expenses Contribution margin Fixed expenses: 460,000 155, 000 203,000102,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 8,600 43,900 20,400 40,000 53,800 70,300 40,700 7,600 38,100 21,000 15,900 36,000 80,80051,600 124,500 $ 45,500 32,200 35,800 $(22,500) 114,100 186,200 Total fixed expenses Net operating income (loss) 414, 500 122,800 167,200 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