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Exercise 13-2 (Algo) Dropping or Retaining a Segment [LO13-2] The Regal Cycle Company manufactures three types of bicyclesa dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Total Dirt Bikes Mountain Bikes Racing Bikes Sales $ 929,000 $ 263,000 $ 410,000 $ 256,000 Variable manufacturing and selling expenses 458,000 110,000 195,000 153,000 Contribution margin 471,000 153,000 215,000 103,000 Fixed expenses: Advertising, traceable 69,900 8,900 40,700 20,300 Depreciation of special equipment 44,000 20,400 7,700 15,900 Salaries of product-line managers 114,800 40,300 38,700 35,800 Allocated common fixed expenses* 185,800 52,600 82,000 51,200 Total fixed expenses 414,500 122,200 169,100 123,200 Net operating income (loss) $ 56,500 $ 30,800 $ 45,900 $ (20,200) *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 management in assessing the long-run profitability of the various product lines.

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