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 $ 934,000 $269,000 $ 406,000 $ 259,000 468,000 117,000 194,000 157,000 466,000 152,000 212,000 102,000 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) 70,500 43,300 114.400 186,800 415,000 $51.000 B, 600 40,900 20,100 7,400 40.900 38.400 53,800 81,200 123,400 167,900 28.600 $ 44,100 21,000 15,800 35.100 51,800 123,700 (21,700) "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