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 $ 932,000 $ 265,000 $ 407,000 $ 260,000 Variable manufacturing and selling expenses 472,000 111,000 202,000 159,000 Contribution margin 460,000 154,000 205,000 101,000 Fixed expenses: Advertising, traceable 68,800 8,100 40,500 20,200 Depreciation of special equipment 43,500 20,100 7,900 15,500 Salaries of product-line managers 114,600 41,000 38,400 35,200 Allocated common fixed expenses* 186,400 53,000 81,400 52,000 Total fixed expenses 413,300 122,200 168,200 122,900 Net operating income (loss) $ 46,700 $ 31,800 $ 36,800 $ (21,900)

*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.