Exercise $6-2($Algo$)$ Dropping or Retaining a Segment $[$L$06-2]$

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:

$*$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:

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

Should the production and sale of racing bikes be discontinued?

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.