*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. 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.

Dirt Mountain Racing Total Bikes Bikes Bikes $ 921,000 $268,000 $ 403,000 $ 250,000 473,000 115,000 201,000 157,000 448,000 153,000 202,000 93,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 69,300 8,300 40,500 20,500 42,900 20,300 7,400 15,200 114,700 40,600 38,900 35,200 184,200 53,600 80,600 50,000 411,100 122,800 167,400 120,900 $ 36,900 $ 30,200 $ 34,600 $ (27,900)