Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] 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 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 $ 924,000 470,000 Dirt Bikes $ 261,000 454,000 116,000 145,000 Mountain Bikes $ 408.000 194,000 214,000 Racing Bikes $255,000 160,000 95,000 70,300 8,700 40,800 20,800 42,400 20,100 7,100 15, 200 114,600 40,400 38,500 35,700 184,800 52,200 412,100 121,400 81,600 168,000 51,000 122,700 $ 41,900 $ 23,600 $ 46,000 $ (27,700) 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.