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 Sales Variable manufacturing and selling expenses Dint Mountain Racing Total Bikes Bikes Bikes S 910,000 $254.000 5401000 $255.000 471,000 120.000 194.000 157.000 Contribution margin 447,000 447.000 44.000 207.000 207.00 96.000 0. Foxed expenses: Advertising, traceable 70.000 8.900 40.900 Depreciation of special equipment 43700 20.500 7.500 Salaries of product line 116.200 40.900 38.500 managers Allocated common fod 193.600 52.000 90.200 expenses Total fed expenses 413.500 123100167100 20.400 15.600 36700 50.600 23.300 Net operating income $33.500 $20.900 $ 39.900 5 27300 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: 1a. What is the impact on net operating Income by discontinuing racing bikes (Decreases should be indicated by a minus sign.) Difference: Total IF Net Racing Operating Current Bikes Income Are Increase Dropped or Decrease) Total Contribution margin Loss Totalled expenses Net operating income Loss 10. Should production and sale of the racing bikes be discontinued Yes 2a. Prepare a segmented Income statement. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 Contribution marin (105) Traceable foed expenses: L Moo Total traceable fixed expenses Hohet HH Net operating income Loss)