Exercise 11-2 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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 929,000 $263,000 $ 409,000 $ 257,000 476,000 114,000 206,000 156,000 453,000 149,000 203,000 101,000 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) 70,400 9,000 40,800 20,600 42,900 20,200 7,300 15,400 113,500 40,000 38,000 35,500 185,800 52,600 81,800 51,400 412,600 121,800 167,900 122,900 $ 40, 400 $ 27,200 $ 35,100 $ (21,900) *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. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Required 1 Required 2 > Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 Contribution margin (loss) Traceable fixed expenses: 0 0 0 Total traceable fixed expenses Product line segment margin (loss) 0 $ 0 $ 0 $ Net operating income (loss) 0