Exercise 6-2 (Algo) Dropping or Retaining a Segment [LO6-2] 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 Pixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses ces Total fixed expenses Net operating income (loss) "Allocated on the basis of sales dollars. Total Dirt Bikes $ 931,000 476,000 455,000 $ 266,000 114,000 152,000 Mountain Bikes $409,000 208,000 201,000 Racing Bikes $ 256,000 154,000 102,000 69,700 8,700. 40,500 20,500 43,500 20,300 7,800 15,400 116,200 40,900 38,400 36,900 186,200 53,200 81,800 51,200 415,600 123,100 168,500 124,000 $ 39,400 $ 28,900 $ 32,500 $ (22,000) 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. 200 Prev 1 of 8 Next >