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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

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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: Mountain Dirt Bikes Bikes Racing Bikes Total Sales $ 929, 000 $ 269, 000 $ 408, 000 $ 252, 000 Variable manufacturing and selling expenses 462, 000 115, 000 195 , 000 152, 000 Contribution margin 467,000 154, 000 213,000 100, 000 Fixed expenses : Advertising, traceable 69 , 400 8 , 600 40, 200 20 , 600 Depreciation of special equipment 43 , 700 21, 000 7, 600 15 , 100 Salaries of product-line managers 116, 200 40 , 700 38 , 700 36, 800 Allocated common fixed expenses* 185 , 800 53 , 800 81 , 600 50 , 400 Total fixed expenses 415 , 100 124, 100 168, 100 122, 900 Net operating income (loss) $ 51, 900 $ 29,900 $ 44, 900 $ (22, 900) *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

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