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The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the

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The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 924,000 $266,000 $ 403,000 $ 255,000 468,000 112,000 196,000 160,000 456,000 154,000 207,000 95,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses! Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses Total fixed expenses Net operating income (los) 70,100 8,300 40,900 20,900 43,000 20,500 7,300 15,200 115,000 40,500 38,600 35,900 184,800 53,200 80.600 51,000 412,900 122,500 167,400 123,000 $ 43,100 $ 31,500 $ 39,600 $(28,000) *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. Required 1 Required 2 Required 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. Totals Dirt Bikes Mountain Bikes Racing Bikes 0 0 0 0 Sales Variable manufacturing and selling expenses Contribution margin (loss) Traceable fixed expenses Advertising, traceable Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses Product line segment margin (oss) Common fixed expenses Net operating income (loss) 0 0 0 0 0 $ 0 $ 0 $ 0 $ 0

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