Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] The Regal Cycle Company manufactures three types of bicyclesa 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) Mountain Total $ 918,000 463,000 115,000 196,000 Dirt Bikes Bikes $264,000 $ 403,000 $ 251,000 152,000 Racing Bikes 455,000 149,000 207,000 99,000 69,300 8,300 40,600 20,400 44,300 21,000 7,600 15,700 114,700 40,400 38,200 36,100 183,600 52,800 80,600 50,200 411,900 122,500 167,000 122,400 $ 43,100 $ 26,500 $ 40,000 $(23,400) *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.