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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 $ 926,000 $ 266,000 $ 403,000 $ 257,000
Variable manufacturing and selling expenses 472,000 119,000 194,000 159,000
Contribution margin 454,000 147,000 209,000 98,000
Fixed expenses:
Advertising, traceable 69,300 8,400 40,400 20,500
Depreciation of special equipment 43,000 20,600 7,200 15,200
Salaries of product-line managers 116,100 40,800 38,900 36,400
Allocated common fixed expenses* 185,200 53,200 80,600 51,400
Total fixed expenses 413,600 123,000 167,100 123,500
Net operating income (loss) $ 40,400 $ 24,000 $ 41,900 $ (25,500)

*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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