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 $ 927,000 $ 266,000 $ 402,000 $ 259,000 Variable manufacturing and selling expenses 467,000 118,000 197,000 152,000 Contribution margin 460,000 148,000 205,000 107,000 Fixed expenses: Advertising, traceable 69,700 8,500 40,900 20,300 Depreciation of special equipment 43,500 20,500 7,200 15,800 Salaries of product-line managers 114,200 40,200 38,600 35,400 Allocated common fixed expenses* 185,400 53,200 80,400 51,800 Total fixed expenses 412,800 122,400 167,100 123,300 Net operating income (loss) $ 47,200 $ 25,600 $ 37,900 $ (16,300)

*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.