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 racing bike. Data on sales and expenses for the past quarter follow: 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). *Allocated on the basis of sales dollars. Total 2. 3. $300,000 Dirt Bikes Mountain Racing Bikes Bikes $90,000 $150,000 $60,000 120,000 27,000 180,000 63,000 60,000 90,000 30,000 10,000 14,000 23,000 6,000 9,000 35,000 12,000 13,000 60,000 18,000 30,000 148,000 46,000 66,000 $32,000 $17,000 $ 24,000 33,000 27,000 6,000 8,000 10,000 12,000 36,000 $(9,000) 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. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Should the production and sale of racing bikes be discontinued? Prepare a properly formatted segmented income statement that would be more useful to man-

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 acing bike. Data on sales and expenses for the past quarter follow: 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 formanted segmented income statement that would be more useful to man