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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 $ 928,000 $ 269,000 $ 403,000 $ 256,000
Variable manufacturing and selling expenses 473,000 113,000 203,000 157,000
Contribution margin 455,000 156,000 200,000 99,000
Fixed expenses:
Advertising, traceable 69,800 8,200 40,900 20,700
Depreciation of special equipment 43,600 20,100 7,600 15,900
Salaries of product-line managers 114,400 40,400 38,900 35,100
Allocated common fixed expenses* 185,600 53,800 80,600 51,200
Total fixed expenses 413,400 122,500 168,000 122,900
Net operating income (loss) $ 41,600 $ 33,500 $ 32,000 $ (23,900)

*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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