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 Total Bikes $ 921,000 $263,000 474,880 117,000 447,800 146,888 Mountain Racing Bikes Bikes $ 403,800 $ 255,000 198,080 159,000 205,880 96,880 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) 69,600 8,500 43,500 20,200 116,200 41,680 184,200 52,600 413,500 122,300 33,500 $ 23,700 $ 40,200 7,600 38,800 80,680 167,200 37,800 20,900 15,700 36,400 51,880 124,800 $(28,000) *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? Required 1 Required 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 Total Bikes $ 921,000 $263,000 474,800 117,880 447,000 146,800 Mountain Racing Bikes Bikes $ 403,800 $ 255,000 198,800 159,800 205,888 96,680 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) 69,600 8,500 43,500 20,200 116,200 41,880 184,200 52,620 413,500 122,300 33,500 $ 23,780 $ 40,200 20,900 7,600 15,700 38,800 36,400 80,680 51,800 167,200 124,800 37,800 $(28,000) $ *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) 0 0 Traceable fixed expenses: Total traceable fixed expenses Product line segment margin (loss) $ 0 $ 0 $ Net operating income (loss)