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$925,000$264,000$404,000$257,000

Variable manufacturing and selling expenses466,000115,000195,000156,000

Contribution margin459,000149,000209,000101,000Fixed expenses:

Advertising, traceable69,5008,10040,40021,000

Depreciation of special equipment43,20020,9007,10015,200

Salaries of product-line managers114,30040,70038,10035,500

Allocated common fixed expenses*185,00052,80080,80051,400

Total fixed expenses412,000122,500166,400123,100

Net operating income (loss)$47,000$26,500$42,600$(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. Prepare properly formatted segmented income statement that would be more useful to management in assessing the long-run profitability of the various product lines.