Exercise 11-2 (Algo) Dropping or Retaining a Segment [LO11-2] 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:

Sales	$ 930,000	$ 266,000	$ 406,000	$ 258,000
Variable manufacturing and selling expenses	465,000	114,000	199,000	152,000
Contribution margin	465,000	152,000	207,000	106,000
Fixed expenses:
Advertising, traceable	69,200	8,400	40,200	20,600
Depreciation of special equipment	44,200	20,600	7,900	15,700
Salaries of product-line managers	116,700	40,900	38,800	37,000
Allocated common fixed expenses*	186,000	53,200	81,200	51,600
Total fixed expenses	416,100	123,100	168,100	124,900
Net operating income (loss)	$ 48,900	$ 28,900	$ 38,900	$ (18,900)

*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.