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: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.

Complete this question by entering your answers in the tabs below.

Required $3$

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

Total Dirt Bikes Mountain Bikes Racing Bikes

Sales $ $930,000$ $ $270,000$ $ $401,000$ $ $259,000$

Variable manufacturing and selling expenses $461,000119,000192,000150,000$

Contribution margin $469,000151,000209,000109,000$

Fixed expenses:

Advertising, traceable $69,6008,60040,60020,400$

Depreciation of special equipment $44,10020,8007,70015,600$

Salaries of product$-$line managers $116,00040,40038,90036,700$

Allocated common fixed expenses$*186,00054,00080,20051,800$

Total fixed expenses $415,700123,800167,400124,500$

Net operating income $($loss$)$ $ $53,300$ $ $27,200$ $ $41,600$ $ $(15,500)$

$*$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.