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 $ 263,000 $ 409,000 $ 254,000 Variable manufacturing and selling expenses 458,000 117,000 190,000 151,000 Contribution margin 468,000 146,000 219,000 103,000 Fixed expenses: Advertising, traceable 69,400 8,700 40,400 20,300 Depreciation of special equipment 43,500 20,800 7,300 15,400 Salaries of product-line managers 115,500 40,700 39,000 35,800 Allocated common fixed expenses* 185,200 52,600 81,800 50,800 Total fixed expenses 413,600 122,800 168,500 122,300 Net operating income (loss) $ 54,400 $ 23,200 $ 50,500 $ (19,300) *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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