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) *Allocated on the basis of sales dollars. Total $ 923,000 460,000 Dirt Bikes 263,000 114,000 463,000 149,000 Mountain Bikes $ 406,000 196,000 210,000 Racing Bikes $ 254,000 150,000 104,000 70,000 8,700 40,500 20,800 43,600 20,300 7,700 15,600 115,000 41,000 38,500 35,500 184,600 52,600 81,200 50,800 413,200 122,600 167,900 122,700 $ 49,800 $ 26,400 $ 42,100 $ (18,700) 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.