Exercise 11-2 Dropping or Retaining a Segment [LO11-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 917,000 $ 264,000 $ 402,000 $ 251,000 Variable manufacturing and selling expenses 482,000 113,000 209,000 160,000 Contribution margin 435,000 151,000 193,000 91,000 Fixed expenses: Advertising, traceable 69,700 8,700 40,300 20,700 Depreciation of special equipment 43,900 20,900 7,300 15,700 Salaries of product-line managers 115,300 40,100 38,200 37,000 Allocated common fixed expenses* 183,400 52,800 80,400 50,200 Total fixed expenses 412,300 122,500 166,200 123,600 Net operating income (loss) $ 22,700 $ 28,500 $ 26,800 $ (32,600) *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.