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	$ 918,000	$ 261,000	$ 402,000	$ 255,000
Variable manufacturing and selling expenses	472,000	112,000	207,000	153,000
Contribution margin	446,000	149,000	195,000	102,000
Fixed expenses:
Advertising, traceable	69,900	8,500	40,600	20,800
Depreciation of special equipment	43,700	20,500	7,500	15,700
Salaries of product-line managers	115,600	40,600	38,800	36,200
Allocated common fixed expenses*	183,600	52,200	80,400	51,000
Total fixed expenses	412,800	121,800	167,300	123,700
Net operating income (loss)	$ 33,200	$ 27,200	$ 27,700	$ (21,700)

*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.

Contribution margin (loss)Traceable fixed expenses:Total traceable fixed expensesProduct line segment margin (loss)Net operating income (loss)

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)	0	0	0	0
Traceable fixed expenses:
Total traceable fixed expenses	0	0	0	0
Product line segment margin (loss)	0	$0	$0	$0
Net operating income (loss)	$0

• Required 2