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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 $ 923,000 $ 265,000 $ 403,000 $ 255,000
Variable manufacturing and selling expenses 466,000 114,000 192,000 160,000
Contribution margin 457,000 151,000 211,000 95,000
Fixed expenses:
Advertising, traceable 70,200 8,800 40,900 20,500
Depreciation of special equipment 42,800 20,100 7,400 15,300
Salaries of product-line managers 115,700 40,300 38,700 36,700
Allocated common fixed expenses* 184,600 53,000 80,600 51,000
Total fixed expenses 413,300 122,200 167,600 123,500
Net operating income (loss) $ 43,700 $ 28,800 $ 43,400 $ (28,500)

*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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