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	$ 405,000	$ 255,000
Variable manufacturing and selling expenses	459,000	112,000	196,000	151,000
Contribution margin	467,000	154,000	209,000	104,000
Fixed expenses:
Advertising, traceable	69,300	8,300	40,100	20,900
Depreciation of special equipment	43,600	20,300	7,500	15,800
Salaries of product-line managers	115,600	40,500	38,300	36,800
Allocated common fixed expenses*	185,200	53,200	81,000	51,000
Total fixed expenses	413,700	122,300	166,900	124,500
Net operating income (loss)	$ 53,300	$ 31,700	$ 42,100	$ (20,500)

*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.

Complete this question by entering your answers in the tabs below. What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Should the production and sale of racing bikes be discontinued? Prepare a properly formatted segmented income statement that would be more useful to management in assessing the Iong-run profitability of the various product lines