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:

Total Dirt Bikes Mountain Bikes Racing Bikes

Sales $ $ $ $

Variable manufacturing and selling expenses

Contribution margin

Fixed expenses:

Advertising, traceable

Depreciation of special equipment

Salaries of productline managers

Allocated common fixed expenses

Total fixed expenses

Net operating income loss $ $ $ $

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 longrun profitability of the various product lines.