Exercise 12-2 Dropping or Retaining a Segment (L012-2] 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 $ 916,000 $261,000 $403,000 $ 252,000 479,000 113,000 207,000 159.000 437,000 148,000 196.000 93,000 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) 69,000 8,400 40,300 20,300 43,900 20,900 7,300 15,700 116,400 40,800 38,700 36,900 183,200 52,200 80.600 50,400 412,500 122,300 166,900 123,300 $ 24,500 $ 25,700 $ 29,100 $(30,300) "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