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		$	267,000		$	405,000		$	254,000
Variable manufacturing and selling expenses		464,000			113,000			199,000			152,000
Contribution margin		462,000			154,000			206,000			102,000
Fixed expenses:
Advertising, traceable		69,300			8,600			40,100			20,600
Depreciation of special equipment		43,800			20,800			7,800			15,200
Salaries of product-line managers		114,800			40,700			38,100			36,000
Allocated common fixed expenses*		185,200			53,400			81,000			50,800
Total fixed expenses		413,100			123,500			167,000			122,600
Net operating income (loss)	$	48,900		$	30,500		$	39,000		$	(20,600)

*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.

The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 926,000 $267,000 $ 405,000 $ 254,000 464,000 113,000 199,000 152,000 462,000 154,000 206,000 102,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 69,300 8,600 40,100 20,600 43,800 20,800 7,800 15, 200 114,800 40,700 38,100 36,000 185,200 53,400 81,000 50,800 413, 100 123,500 167,000 122,600 $ 48,900 $ 30,500 $ 39,000 $(20,600) *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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes? Financial (disadvantage) per quarter Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes $ 926,000 $ 267,000 $ 405,000 $ 254,000 926,000 267,000 405,000 254,000 Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses: Advertising Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (loss) 0 0 0 926,000 $ 267,000 $ 405,000 $ 254,000 Common fixed expenses 185,200 Net operating income (loss) $ 740,800