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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

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 $ 916,000 $ 261,000 $ 402,000 $ 253,000
Variable manufacturing and selling expenses 463,000 110,000 199,000 154,000
Contribution margin 453,000 151,000 203,000 99,000
Fixed expenses:
Advertising, traceable 69,600 8,500 40,300 20,800
Depreciation of special equipment 43,700 20,400 7,900 15,400
Salaries of product-line managers 116,500 41,000 38,600 36,900
Allocated common fixed expenses* 183,200 52,200 80,400 50,600
Total fixed expenses 413,000 122,100 167,200 123,700
Net operating income (loss) $ 40,000 $ 28,900 $ 35,800 $ (24,700)

*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.

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