EXERCISE 13-2 Dropping or Retaining a Segment 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 Sales . . $300,000 $90,000 $150,000 $60,000 Variable manufacturing and selling expenses . . . .. . .. 120,000 27,000 60,000 33,000 Contribution margin . ..... 180,000 63,000 90,000 27,000 Fixed expenses: Advertising, traceable. . . . 30,000 10,000 14,000 6,000 Depreciation of special equipment .... .... . ... ... 23,000 6,000 9,000 8,000 Salaries of product-line managers ... .... ... 35,000 12,000 13,000 10,000 Allocated common fixed expenses* . . 60,000 18,000 30,000 12,000 Total fixed expenses. ... .. 148,000 46,000 66,000 36,000 Net operating income (loss) . . . .... $ 32,000 $17,000 $ 24,000 $ (9,000) *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 no out