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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 $ 927,000 $ 264,000 $ 405,000 $ 258,000
Variable manufacturing and selling expenses 478,000 116,000 205,000 157,000
Contribution margin 449,000 148,000 200,000 101,000
Fixed expenses:
Advertising, traceable 69,700 8,900 40,100 20,700
Depreciation of special equipment 44,500 20,900 7,600 16,000
Salaries of product-line managers 114,300 40,100 38,800 35,400
Allocated common fixed expenses* 185,400 52,800 81,000 51,600
Total fixed expenses 413,900 122,700 167,500 123,700
Net operating income (loss) $ 35,100 $ 25,300 $ 32,500 $ (22,700)

*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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