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 $ 926,000 $ 266,000 $ 401,000 $ 259,000

Variable manufacturing and selling expenses 473,000 118,000 196,000 159,000

Contribution margin 453,000 148,000 205,000 100,000

Fixed expenses: Advertising, traceable 69,300 8,500 40,700 20,100

Depreciation of special equipment 44,000 20,400 8,000 15,600

Salaries of product-line managers 115,200 40,700 38,000 36,500

Allocated common fixed expenses* 185,200 53,200 80,200 51,800

Total fixed expenses 413,700 122,800 166,900 124,000

Net operating income (loss) $ 39,300 $ 25,200 $ 38,100 $ (24,000)

*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.