Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2) a 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: Total $ 925,000 464,000 461,000 Dirt Bikes $ 262,000 112,000 150,000 Mountain Bikes $ 407,000 200,000 207.000 Racing Bikes $ 256,000 152,000 104.000 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 Het operating income (lon) 69,000 43.800 114,300 185,000 412,100 $ 48,900 8,400 20.700 40,600 52,400 122, 100 $ 27,900 40.500 7.600 38,400 81,400 167,900 5 39,100 20,100 15,500 35,300 51,200 122, 100 5 (18,100) "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 property formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines