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 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) *Allocated on the basis of sales dollars. Total $ 921,000 473,000 448,000 Dirt Bikes $ 269,000 115,000 154,000 Mountain Bikes $ 402,000 208,000 194,000 Racing Bikes $ 250,000 150,000 100,000 69,300 8,600 40,200 20,500 43,400 20,300 7,300 15,800 115,300 40,100 39,000 36,200 184,200 53,800 80,400 50,000 412,200 122,800 166,900 122,500 $ 35,800 $ 31,200 $ 27,100 $ (22,500) 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.