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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 $ 924,000 $ 264,000 $ 407,000 $ 253,000
Variable manufacturing and selling expenses 479,000 116,000 209,000 154,000
Contribution margin 445,000 148,000 198,000 99,000
Fixed expenses:
Advertising, traceable 69,700 8,500 40,900 20,300
Depreciation of special equipment 44,100 21,000 7,900 15,200
Salaries of product-line managers 115,600 40,900 38,500 36,200
Allocated common fixed expenses* 184,800 52,800 81,400 50,600
Total fixed expenses 414,200 123,200 168,700 122,300
Net operating income (loss) $ 30,800 $ 24,800 $ 29,300 $ (23,300)

*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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