The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes Sales $ 920, 000 $262, 000 $ 407,000 $ 251,000 Variable manufacturing and selling expenses 481, 000 118, 000 205,000 158, 000 Contribution margin 439,000 144 , 000 202, 000 93 , 090 Fixed expenses : Advertising, traceable 69, 800 8,400 40 , 509 20,900 Depreciation of special equipment 44, 000 20, 400 8, 000 15, 600 Salaries of product-line managers 115,000 40, 100 38,600 36, 300 Allocated common fixed expenses* 184,000 52, 400 81, 400 50, 200 Total fixed expenses 412, 800 121, 300 168 , 500 123, 000 Net operating income (loss) $ 26, 200 $ 22,700 $ 33,500 $ (30, 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. Prey. 1 of 1 Next