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 $ 264,000 $ 408,000 $ 254,000

Variable manufacturing and selling expenses 480,000 114,000 206,000 160,000

Contribution margin 446,000 150,000 202,000 94,000

Fixed expenses:

Advertising, traceable 69,700 8,600 40,600 20,500

Depreciation of special equipment 43,700 20,600 7,100 16,000

Salaries of product-line managers 114,300 40,200 38,400 35,700

Allocated common fixed expenses* 185,200 52,800 81,600 50,800

Total fixed expenses 412,900 122,200 167,700 123,000

Net operating income (loss) $ 33,100 $ 27,800 $ 34,300 $ (29,000)

*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. Help me make a properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.