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Exercise 12-2 Dropping or Retaining a Segment [LO12-2] The Regal Cycle Company manufactures three types...

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Exercise 12-2 Dropping or Retaining a Segment [LO12-2] 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: Dirt Nountain Racing Bikes Total Bikes Bikes Sales Variable manufacturing and selling $ 928,000 $268,000 404,000 256,000 74,000 116,000 201,000 157,000 expenses Contribution margin Fixed expenses: 454, 000 152,000 203,000 99,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 70,100 8,300 40,900 20,900 42,900 20,200 114,900 40,500 38,500 35,900 185,600 53,600 13,500 122,600 167,600 123,300 40,500 29,400 35,400 (24,300) 7,400 15,300 80,800 51,200 Total fixed expenses Net operating income (loss) 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

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