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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 $ 933,000 $ 268,000 $ 406,000 $ 259,000
Variable manufacturing and selling expenses 463,000 117,000 194,000 152,000
Contribution margin 470,000 151,000 212,000 107,000
Fixed expenses:
Advertising, traceable 69,800 8,200 40,900 20,700
Depreciation of special equipment 43,300 20,500 7,200 15,600
Salaries of product-line managers 115,200 40,100 38,700 36,400
Allocated common fixed expenses* 186,600 53,600 81,200 51,800
Total fixed expenses 414,900 122,400 168,000 124,500
Net operating income (loss) $ 55,100 $ 28,600 $ 44,000 $ (17,500)

*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.

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