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:

$*$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:

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the Racing Bikes?

Should the production and sale of racing bikes be discontinued?

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 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 $ $924,000$ $ $265,000$ $ $401,000$ $ $258,000$

Variable manufacturing and selling expenses $478,000113,000209,000156,000$

Contribution margin $446,000152,000192,000102,000$

Fixed expenses:

Advertising, traceable $70,1008,70040,90020,500$

Depreciation of special equipment $43,00020,3007,20015,500$

Salaries of product$-$line managers $113,50040,10038,30035,100$

Allocated common fixed expenses$*184,80053,00080,20051,600$

Total fixed expenses $411,400122,100166,600122,700$

Net operating income $($loss$)$ $ $34,600$ $ $29,900$ $ $25,400$ $ $(20,700)$

$*$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.