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	$	924,000		$	265,000		$	404,000		$	255,000
Variable manufacturing and selling expenses		466,000			120,000			191,000			155,000
Contribution margin		458,000			145,000			213,000			100,000
Fixed expenses:
Advertising, traceable		69,700			8,500			40,900			20,300
Depreciation of special equipment		43,900			20,400			7,800			15,700
Salaries of product-line managers		114,000			40,000			38,200			35,800
Allocated common fixed expenses*		184,800			53,000			80,800			51,000
Total fixed expenses		412,400			121,900			167,700			122,800
Net operating income (loss)	$	45,600		$	23,100		$	45,300		$	(22,800)

*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.

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: Dirt Mountain Racing Total Bikes Bikes Bikes $ 924,000 $265,000 $ 404,000 $ 255,000 466,000 120,000 191,000 155,000 458,000 145,000 213,000 100,000 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) 69, 700 8,500 40,900 20,300 43,900 20,400 7,800 15,700 114,000 40,000 38,200 35,800 184,800 53,000 80,800 51,000 412,400 121,900 167,700 122,800 $ 45,600 $ 23,100 $ 45,300 $ (22,800) *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. 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? 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. Complete this question by entering your answers in the tabs below. L LLLLLL Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 Contribution margin (loss) Traceable fixed expenses: L L Total traceable fixed expenses 0 0 0 0 0 0 0 $ $ $ Net operating income (loss)