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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 $ 928,000 $ 267,000 $ 404,000 $ 257,000
Variable manufacturing and selling expenses 466,000 113,000 200,000 153,000
Contribution margin 462,000 154,000 204,000 104,000
Fixed expenses:
Advertising, traceable 70,000 8,900 40,200 20,900
Depreciation of special equipment 44,100 20,800 7,400 15,900
Salaries of product-line managers 115,200 40,100 38,800 36,300
Allocated common fixed expenses* 185,600 53,400 80,800 51,400
Total fixed expenses 414,900 123,200 167,200 124,500
Net operating income (loss) $ 47,100 $ 30,800 $ 36,800 $ (20,500)

*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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