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

$ 924,000 $ 270,000 $ 404,000 $ 250,000

Variable manufacturing and selling expenses 464,000 110,000 199,000 155,000

Contribution margin 460,000 160,000 205,000 95,000

Fixed expenses:

Advertising, traceable 68,900 8,100 40,400 20,400

Depreciation of special equipment 43,100 20,400 7,200 15,500

Salaries of product-line managers 115,900 41,000 38,500 36,400

Allocated common fixed expenses* 184,800 54,000 80,800 50,000

Total fixed expenses 412,700 123,500 166,900 122,300

Net operating income (loss) $ 47,300 $ 36,500 $ 38,100 $ (27,300)

*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.