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

$

927,000

$

269,000

$

406,000

$

252,000

Variable manufacturing and selling expenses

475,000

114,000

206,000

155,000

Contribution margin

452,000

155,000

200,000

97,000

Fixed expenses:

Advertising, traceable

70,300

9,000

40,800

20,500

Depreciation of special equipment

43,900

20,900

7,400

15,600

Salaries of product-line managers

115,000

40,600

38,900

35,500

Allocated common fixed expenses*

185,400

53,800

81,200

50,400

Total fixed expenses

414,600

124,300

168,300

122,000

Net operating income (loss)

$

37,400

$

30,700

$

31,700

$

(25,000)

*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.