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	$	923,000		$	263,000		$	403,000		$	257,000
Variable manufacturing and selling expenses		464,000			114,000			198,000			152,000
Contribution margin		459,000			149,000			205,000			105,000
Fixed expenses:
Advertising, traceable		70,100			8,600			40,500			21,000
Depreciation of special equipment		44,300			20,600			7,900			15,800
Salaries of product-line managers		114,000			40,200			38,300			35,500
Allocated common fixed expenses*		184,600			52,600			80,600			51,400
Total fixed expenses		413,000			122,000			167,300			123,700
Net operating income (loss)	$	46,000		$	27,000		$	37,700		$	(18,700)

*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?

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.

Complete this question by entering your answers in the tabs below.

• Required 1

• Required 2
• Required 3

What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

Should the production and sale of racing bikes be discontinued?

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.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)	0	0	0	0
Traceable fixed expenses:
Total traceable fixed expenses	0	0	0	0
Product line segment margin (loss)	0	$0	$0	$0
Net operating income (loss)	$0