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:

TotalDirt

BikesMountain BikesRacing

BikesSales$929,000$261,000$410,000$258,000Variable manufacturing and selling expenses482,000119,000207,000156,000Contribution margin447,000142,000203,000102,000Fixed expenses:Advertising, traceable69,7008,30041,00020,400Depreciation of special equipment43,70020,3007,90015,500Salaries of product-line managers114,50040,40038,60035,500Allocated common fixed expenses*185,80052,20082,00051,600Total fixed expenses413,700121,200169,500123,000Net operating income (loss)$33,300$20,800$33,500$(21,000)

*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.