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

$

930,000

$

266,000

$

406,000

$

258,000

Variable manufacturing and selling expenses

476,000

112,000

210,000

154,000

Contribution margin

454,000

154,000

196,000

104,000

Fixed expenses:

Advertising, traceable

69,800

9,000

40,300

20,500

Depreciation of special equipment

43,500

20,500

7,300

15,700

Salaries of product-line managers

113,800

40,300

38,100

35,400

Allocated common fixed expenses*

186,000

53,200

81,200

51,600

Total fixed expenses

413,100

123,000

166,900

123,200

Net operating income (loss)

$

40,900

$

31,000

$

29,100

$

(19,200)

*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. 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.