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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 $ 935,000 $ 267,000 $ 410,000 $ 258,000
Variable manufacturing and selling expenses 458,000 113,000 191,000 154,000
Contribution margin 477,000 154,000 219,000 104,000
Fixed expenses:
Advertising, traceable 70,100 8,800 40,800 20,500
Depreciation of special equipment 44,100 20,700 7,400 16,000
Salaries of product-line managers 115,900 40,200 38,900 36,800
Allocated common fixed expenses* 187,000 53,400 82,000 51,600
Total fixed expenses 417,100 123,100 169,100 124,900
Net operating income (loss) $ 59,900 $ 30,900 $ 49,900 $ (20,900)

*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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