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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 925,000 $266,000 $ 403,000 S 256,000 474,000 115,000 199,000 160,000 451,000 151,000 204,000 96,000 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 Net operating income (loss) 69,800 8,200 40,800 20,800 44,500 21,000 7,600 15,900 114,800 40,900 38, 100 35,800 185,000 53,200 80,600 51,200 414, 100 123,300 167,100 123,700 $36,900 $ 27,700 $ 36,900 $(27,700) *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