5. 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	$	927,000		$	266,000		$	402,000		$	259,000
Variable manufacturing and selling expenses		469,000			118,000			193,000			158,000
Contribution margin		458,000			148,000			209,000			101,000
Fixed expenses:
Advertising, traceable		69,200			8,300			40,500			20,400
Depreciation of special equipment		44,100			20,900			7,900			15,300
Salaries of product-line managers		114,800			40,100			38,600			36,100
Allocated common fixed expenses*		185,400			53,200			80,400			51,800
Total fixed expenses		413,500			122,500			167,400			123,600
Net operating income (loss)	$	44,500		$	25,500		$	41,600		$	(22,600)

*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.

Complete this question by entering your answers in the tabs below.

• Required 1

What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?

• Required 2

Should the production and sale of racing bikes be discontinued?

	Yes No

• Required 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.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)