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 expensess 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 Dirt Bikes $920,000 $ 265,000 Mountain Bikes $ 402,000 Racing Bikes $ 253,000 482,000 438,000 119,000 146,000 206,000 196,000 157,000 96,000 69,400) 8,600 40,400 20,400 43,400 20,100 7,900 15,400 114,900 40,700 36,700 35,500 184,000 $3,000 80,400 50,600 411,700 122,400 167,400 121,900 $ 26,300 $ 23,600 $ 28,600 $ (25,900) 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.