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 $ 927,000 $ 262,000 $ 406,000 $ 259,000

Variable manufacturing and selling expenses 459,000 116,000 191,000 152,000

Contribution margin 468,000 146,000 215,000 107,000 F

ixed expenses: Advertising, traceable 70,300 9,000 40,800 20,500

Depreciation of special equipment 43,900 20,400 8,000 15,500

Salaries of product-line managers 115,600 41,000 38,300 36,300

Allocated common fixed expenses* 185,400 52,400 81,200 51,800

Total fixed expenses 415,200 122,800 168,300 124,100

Net operating income (loss) $ 52,800 $ 23,200 $ 46,700 $ (17,100)

*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.