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 $ 926,000 $ 262,000 $ 406,000 $ 258,000

Variable manufacturing and selling expenses 471,000 118,000 197,000 156,000

Contribution margin 455,000 144,000 209,000 102,000

Fixed expenses:

Advertising, traceable 69,800 8,600 40,900 20,300

Depreciation of special equipment 43,900 20,500 7,600 15,800

Salaries of product-line managers 115,300 40,700 38,600 36,000

Allocated common fixed expenses* 185,200 52,400 81,200 51,600

Total fixed expenses 414,200 122,200 168,300 123,700

Net operating income (loss) $ 40,800 $ 21,800 $ 40,700 $ (21,700)

*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?1. What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?

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.