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	$	928,000		$	264,000		$	409,000		$	255,000
Variable manufacturing and selling expenses		459,000			112,000			193,000			154,000
Contribution margin		469,000			152,000			216,000			101,000
Fixed expenses:
Advertising, traceable		70,800			8,800			41,000			21,000
Depreciation of special equipment		43,000			20,200			7,300			15,500
Salaries of product-line managers		114,600			40,300			38,700			35,600
Allocated common fixed expenses*		185,600			52,800			81,800			51,000
Total fixed expenses		414,000			122,100			168,800			123,100
Net operating income (loss)	$	55,000		$	29,900		$	47,200		$	(22,100)

*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.

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? Yes or No

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
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)