Managerial Accounting: E13-2 The Regal Cycle Company manufactures three types

Managerial Accounting 
E13-2 Dropping or Retaining a Segment 
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: 
Total Dirt Bikes Mountain Bikes Racing Bikes
Sales 300,000 90,000 150,000 60,000 
Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000 
Contribution margin 180,000 63,000 90,000 27,000 
Fixed expenses: 
  Advertising, traceable 30,000 10,000 14,000 6,000 
  Depreciation of special equipment 23,000 6,000 9,000 8,000 
  Salaries of product-line managers 35,000 12,000 13,000 10,000 
  Allocated common fixed expenses* 60,000 18,000 30,000 12,000 
Total fixed expenses 148,000 46,000 66,000 36,000 
Net operating income (loss) $32,000 $17,000 $24,000 $(9,000)
*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. 

1. Should production and sale of the racing bikes be discontinued? Explain. Show computations to support your answer. 
2. Recast the above data in a format that would be more usable to management in assessing the long-run profitability of the various product lines.
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