EXERCISE 6-2 Dropping or Retaining a Segment L06-2 of a racing bike. Data on sales and expenses for the past quarter follow: The Regal Cycle Company manufactures three types of bicycles a dirt bike, a mountain bike, and Dirt Mountain Bikes Racing Bikes Total Bikes $300,000 $90,000 $150,000 $60,000 . 120,000 + 27,000 60,000 63,000 90,000 33,000 27,000 180,000 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. 30,000 23,000 35,000 60,000 10,000 6,000 12,000 18,000 14,000 9.000 13,000 30,000 6,000 8,000 10,000 12.000 Total fixed expenses. 148,000 46,000 66,000 36,000 $ (9.000) Net operating income (loss).. $ 32,000 $17.000 $ 24,000 * 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 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 man agement in assessing the long-run profitability of the various product lines