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4 Exercise 13-2 (Algo) Dropping or Retaining a Segment (LO13-2) 1.85 points Book The Regal Cycle Company manufactures three types of bicycles--a dirt bike, a mountain bike, and a racing bike. Doto on sales and expenses for the past quarter follow: Dirt Mountain Racing Totat Bikes Bikes Bikes Sales Variable manufacturing and selling 5923,000 $261,000 $409,000 5 253,000 expenses 477,000 117,000 208,000 152,000 Contribution margin 446,000 144,000 201,000 101,000 Fixed expenses Advertising, traceable 09,500 8.800 40,200 20,500 Depreciation of special equipment 43,500 20.200 7,800 15,500 Salaries of product-Line managers 114,480 40,500 38,000 35,900 Allocated common fixed expenses 184,600 52,200 81,800 50,600 Total fixed expenses 412,000 121,700 167,800 122,500 Net operating incon (loss) $ 000 $ 22,300 $ 33,200 $(21,500) Hint "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 rosale 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

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