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 Mountain Bikes RacingBikes

Sales $300,000 $90,000 $150,000 $60,000

Variable manufacturing

and selling expenses120,000 27,000 60,000 33,000

Contribution margin180,00063,000 90,000 27,000

Fixed expenses:

Advertising, traceable30,00010,000 14,000 6,000

Depreciation of special equipment23,0006,0009,000 8,000

Salaries of product-line managers35,000 12,000 13,000 10,000

Allocated common fixed expenses*60,000 18,000 30,000 12,000

Total fixed expenses 148,000 46,000 66,000 36,000

Net operating income (loss) $32,000 $17,000 $24,000 $(9,000)

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