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.