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 Sales $300,000 $90,000 $150,000 $60,000 Variable manufacturing and selling expenses 120,000 27,000_60,000 33 Contribution margin 180,000 63,000 90,000 27,000 Fixed expenses: Advertising, traceable 30,000 10,000 14,000 6,000 Depreciation of 23,000 6,000 9,000 8,000 special equipment Salaries of product- 35,000 12,000 13,000 10,000 line managers Allocated common fixed a 60,000 18,000 30,000 12,000 expenses* Total fixed expenses 148,000 46,000 66,000 36,000 Net operating income $ 32,000 $17,000 $ 24,000 $(9,000) (loss) *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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? sired 1 Required 2 > Financial advantage per quarter Financial (disadvantage) per quarter Exercise 12-2 Dropping or Retaining a Segment (LO12-2] 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 Sales $300,000 $90,000 $150,000 $60,000 Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000 Contribution margin 180,000 63,000 90,000 27,000 Fixed expenses: Advertising, traceable 30,000 10,000 14,000 6,000 Depreciation of 23,000 6,000 9,000 8,000 special equipment Salaries of product- 35,000 12,000 13,000 10,000 line managers Allocated common fixed 60,000 18,000 30,000 12,000 expenses* Total fixed expenses 148,000 46,000 66,000 36,000 Net operating income $ 32,000 $17,000 $ 24,000 $(9,000) (loss) *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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes ONO AUVELLID , Llaceause JUUUUUUUU14, UUU UUUU Depreciation of 23,000 6,000 9,000 8,000 special equipment Salaries of product- 35,000 12,000 13,000 10,000 line managers Allocated common fixed 60.000 18,000 30,000 12,000 expenses* Total fixed expenses 148,000 46,000 66,000 36,000 Net operating income $ 32,000 $17,000 $ 24,000 $19,000) (loss) *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. Complete this question by entering your answers in the tabs below. 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 Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) Net operating income (loss)