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	$	930,000		$	265,000		$	407,000		$	258,000
Variable manufacturing and selling expenses		474,000			113,000			205,000			156,000
Contribution margin		456,000			152,000			202,000			102,000
Fixed expenses:
Advertising, traceable		68,800			8,100			40,100			20,600
Depreciation of special equipment		43,300			20,400			7,700			15,200
Salaries of product-line managers		114,900			40,400			38,500			36,000
Allocated common fixed expenses*		186,000			53,000			81,400			51,600
Total fixed expenses		413,000			121,900			167,700			123,400
Net operating income (loss)	$	43,000		$	30,100		$	34,300		$	(21,400)

*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.

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.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)

• Required 2
• Required 3