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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

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 $ 930,000 $ 265,000 $ 406,000 $ 259,000
Variable manufacturing and selling expenses 481,000 116,000 205,000 160,000
Contribution margin 449,000 149,000 201,000 99,000
Fixed expenses:
Advertising, traceable 69,300 8,300 40,300 20,700
Depreciation of special equipment 43,500 21,000 7,100 15,400
Salaries of product-line managers 113,600 40,300 38,100 35,200
Allocated common fixed expenses* 186,000 53,000 81,200 51,800
Total fixed expenses 412,400 122,600 166,700 123,100
Net operating income (loss) $ 36,600 $ 26,400 $ 34,300 $ (24,100)

*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.

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