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: Racing Dirt Mountain Total Bikes Bikes Bikes $ 925,000 $268,000 $ 406,000 $ 251,000 470,000 110,000 203,000 157,000 455,000 158,000 203,000 94,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (loss) 70,200 43,900 114,600 185,000 413,700 $ 41,300 8,800 40, 800 20,600 21,000 7,200 15,700 40,300 38,600 35, 700 53,600 81,200 50,200 123, 700 167,800 122,200 34,300 $ 35,200 $(28,200) *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. Bed & Bath, a retailing company, has two departments-Hardware and Linens. The company's most recent monthly contribution format income statement follows: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) Department Total Hardware Linens $ 4,270,000 $3,150,000 $1,120,000 1,211,000 808,000 403,000 3,059,000 2, 342,000 717,000 2,240,000 1,430,000 810,000 $ 819,000 $ 912,000 $ (93, 000) A study indicates that $373,000 of the fixed expenses being charged to Linens are sunk costs or allocated costs that will continue even if the Linens Department is dropped. In addition, the elimination of the Linens Department will result in a 16% decrease in the sales of the Hardware Department. Required: What is the financial advantage (disadvantage) of discontinuing the Linens Department