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

$

925,000

$

265,000

$

407,000

$

253,000

Variable manufacturing and selling expenses

461,000

112,000

192,000

157,000

Contribution margin

464,000

153,000

215,000

96,000

Fixed expenses:

Advertising, traceable

69,100

8,600

40,100

20,400

Depreciation of special equipment

43,900

20,700

7,200

16,000

Salaries of product-line managers

115,500

40,300

38,600

36,600

Allocated common fixed expenses*

185,000

53,000

81,400

50,600

Total fixed expenses

413,500

122,600

167,300

123,600

Net operating income (loss)

$

50,500

$

30,400

$

47,700

$

(27,600)

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