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$1.$ The Regal Cycle Company manufactures three types of bicycles$$a 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

$ $915,000$

$ $261,000$

$ $402,000$

$ $252,000$

Variable manufacturing and selling expenses

$478,000$

$118,000$

$207,000$

$153,000$

Contribution margin

$437,000$

$143,000$

$195,000$

$99,000$

Fixed expenses:

Advertising, traceable

$69,500$

$8,600$

$40,400$

$20,500$

Depreciation of special equipment

$43,100$

$20,100$

$7,200$

$15,800$

Salaries of product$-$line managers

$114,200$

$40,100$

$38,800$

$35,300$

Allocated common fixed expenses$*$

$183,000$

$52,200$

$80,400$

$50,400$

Total fixed expenses

$409,800$

$121,000$

$166,800$

$122,000$

Net operating income $($loss$)$

$ $27,200$

$ $22,000$

$ $28,200$

$ $(23,000)$

$*$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.

Financial advantage $($disadvantage$)$ per quarter

Total

Dirt Bikes

Mountain Bikes

Racing Bikes

Contribution Margin $($Loss$)$

Traceable Fixed Expenses:

Traceable Fixed Expenses

Product Line Segment Margin $($Loss$)$

Net Operating Income $($Loss$)$ Bikes Mountain Bikes Racing Bikes Sales $ $300,000$ $ $90,000$ $ $150,000$ $ $60,000$ Variable manufacturing and selling expenses $120,00027,00060,00033,000$