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	$	917,000		$	264,000		$	401,000		$	252,000
Variable manufacturing and selling expenses		486,000			118,000			209,000			159,000
Contribution margin		431,000			146,000			192,000			93,000
Fixed expenses:
Advertising, traceable		69,600			8,400			40,500			20,700
Depreciation of special equipment		43,800			20,500			7,400			15,900
Salaries of product-line managers		113,800			40,100			38,500			35,200
Allocated common fixed expenses*		183,400			52,800			80,200			50,400
Total fixed expenses		410,600			121,800			166,600			122,200
Net operating income (loss)	$	20,400		$	24,200		$	25,400		$	(29,200)

*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.

What is the financial advantage (disadvantage) per quarter of discontinuing the racing bikes?

Should the production and sale of racing bikes be discontinued?

	Yes No

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)	0	0	0	0
Traceable fixed expenses:
Total traceable fixed expenses	0	0	0	0
Product line segment margin (loss)	0	$0	$0	$0
Net operating income (loss)	$0