Q1: What is the financial advantage (or disadvantage) per quarter of discontinuing the Racing Bikes?

Q2: Should the production and sale of racing bikes be discontinued. Yes or No?

Q3: 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.

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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 918,000 $262,000 $ 402,000 $ 254,000 459,000 111,000 191,000 157,000 459,000 151,000 211,000 97,000 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) 69,800 8,200 40,700 20,900 44,000 20,300 7,800 15,900 115,400 40,800 38,100 36,500 183,600 52,400 80,400 50,800 412,800 121,700 167,000 124,100 $ 46,200 $ 29,300 $ 44,000 $(27,100) *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