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 $ 929,000 $ 265,000 $ 409,000 $ 255,000

Variable manufacturing and selling expenses 480,000 118,000 202,000 160,000

Contribution margin 449,000 147,000 207,000 95,000

Fixed expenses: Advertising, traceable 70,300 8,600 41,000 20,700

Depreciation of special equipment 43,600 21,000 7,400 15,200

Salaries of product-line managers 114,600 40,400 38,400 35,800

Allocated common fixed expenses* 185,800 53,000 81,800 51,000

Total fixed expenses 414,300 123,000 168,600 122,700

Net operating income (loss) $ 34,700 $ 24,000 $ 38,400 $ (27,700)

*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.