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 $ 929,000 $ 267,000 $ 405,000 $ 257,000

Variable manufacturing and selling expenses 466,000 114,000 199,000 153,000

Contribution margin 463,000 153,000 206,000 104,000

Fixed expenses:

Advertising, traceable 69,100 8,800 40,100 20,200

Depreciation of special equipment 43,600 20,600 7,400 15,600

Salaries of product-line managers 115,800 40,400 38,500 36,900

Allocated common fixed expenses* 185,800 53,400 81,000 51,400

Total fixed expenses 414,300 123,200 167,000 124,100

Net operating income (loss) $ 48,700 $ 29,800 $ 39,000 $ (20,100)

*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.