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 Mountain Racing

Bike Bike Bike

Sales $925,000 $267,000 $407,000 $251,000

Variable manufacturing and selling expenses 468,000 116,000 200,000 152,000

Contribution margin 457,000 151,000 207,000 99,000

Fixed expenses:

Advertising, traceable 69,300 8,700 40,300 20,300

Depreciation of special equipment 44,000 20,800 8,000 15,200

Salaries of product-line managers 114,100 40,100 38,600 35,400

Allocated common fixed expenses* 185,000 53,400 81,400 50,200

Total fixed expenses 412,400 123,000 168,300 121,100

Net operating income (loss) $44,600 $28,000 $38,700 $(22,100)

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