EXERCISE 12-2 Dropping or Retaining a Segment [L012-2] The Regal Cycle Company manufactures three types of bicycles--a dirt bike, a mountain bi a racing bike. Data on sales and expenses for the past quarter follow: bike, and Mountain Bikes Racing Bikes Dirt Total $300,000$90,000 $150,000 $60,000 60,000 33,000 27,000 Sales Variable manufacturing 27,000 63,000 10,000 6,000 12,000 18,000 46,000 120,000 and selling expenses . Contribution margin... Fixed expenses: 90,000 180,000 30,000 23,000 35,000 60,000 14,000 Advertising, traceable Depreciation of special equipment managers expenses... Salaries of product-line 13,000 10,000 12,000 36,000 Net operating income (loss)$32,000 $17,000 24,000 (9,000 Alocated common fixed 30,000 66,000 Allocated on the basis of sales dollars. Management is concerned about the continued losses shown by the racing bikes and wants a rec- ommendation 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. Should production and sale of the racing bikes be discontinued? Explain. Show computations to support your answer. Recast the above data in a format that would be more usable to management in assessing the long-run profitability of the various product lines. 2