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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 $ 919,000 $ 267,000 $ 400,000 $ 252,000
Variable manufacturing and selling expenses 466,000 111,000 203,000 152,000
Contribution margin 453,000 156,000 197,000 100,000
Fixed expenses:
Advertising, traceable 69,100 8,500 40,100 20,500
Depreciation of special equipment 43,400 20,400 7,700 15,300
Salaries of product-line managers 115,400 40,700 38,500 36,200
Allocated common fixed expenses* 183,800 53,400 80,000 50,400
Total fixed expenses 411,700 123,000 166,300 122,400
Net operating income (loss) $ 41,300 $ 33,000 $ 30,700 $ (22,400)
*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.

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