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 $ $925,000$ $ $264,000$ $ $408,000$ $ $253,000$

Variable manufacturing and selling expenses $470,000111,000207,000152,000$

Contribution margin $455,000153,000201,000101,000$

Fixed expenses:

Advertising, traceable $69,4008,70040,30020,400$

Depreciation of special equipment $43,80020,2007,60016,000$

Salaries of product$-$line managers $114,60040,10038,10036,400$

Allocated common fixed expenses$*185,00052,80081,60050,600$

Total fixed expenses $412,800121,800167,600123,400$

Net operating income $($loss$)$ $ $42,200$ $ $31,200$ $ $33,400$ $ $(22,400)$

$*$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.

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