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 DirtBikes MountainBikes RacingBikes

Sales $931,000 $269,000 $404,000 $258,000

Variable manufacturing and selling expenses 458,000 111,000 195,000 152,000

Contribution margin 473,000 158,000 209,000 106,000

Fixed expenses:

Advertising, traceable 69,800 8,900 40,400 20,500

Depreciation of special equipment 44,600 20,900 8,000 15,700

Salaries of product-line managers 115,300 40,800 38,200 36,300

Allocated common fixed expenses* 186,200 53,800 80,800 51,600

Total fixed expenses 415,900 124,400 167,400 124,100

Net operating income (loss) $57,100 $33,600 $41,600 $(18,100)

*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.