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 $ 926,000 $ 264,000 $ 408,000 $ 254,000 Variable manufacturing and selling expenses 466,000 117,000 195,000 154,000 Contribution margin 460,000 147,000 213,000 100,000 Fixed expenses: Advertising, traceable 69,700 8,700 40,200 20,800 Depreciation of special equipment 43,800 20,300 7,900 15,600 Salaries of product-line managers 115,800 40,600 38,400 36,800 Allocated common fixed expenses* 185,200 52,800 81,600 50,800 Total fixed expenses 414,500 122,400 168,100 124,000 Net operating income (loss) $ 45,500 $ 24,600 $ 44,900 $ (24,000)

*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.

Left side options for required 3.

-Advertising, traceable -Common fixed expenses -Depreciation of special equipment -Salaries of the product line managers -Sales -Variable manufacturing and selling expenses

Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 > Financial (disadvantage) per quarter Financial advantage per quarter Required 1 Required 2. Required 3 Should the production and sale of racing bikes be discontinued? OYes ONO 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 Contribution margin (loss) Traceable fixed expenses: 0 0 0 0 Total traceable fixed expenses Product line segment margin (loss) 0 $ 0 $ 0 $ 0 Net operating income (loss) $ 0