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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 $ 923,000 $ 261,000 $ 410,000 $ 252,000
Variable manufacturing and selling expenses 479,000 118,000 204,000 157,000
Contribution margin 444,000 143,000 206,000 95,000
Fixed expenses:
Advertising, traceable 70,100 8,800 40,400 20,900
Depreciation of special equipment 44,100 20,900 7,300 15,900
Salaries of product-line managers 113,800 40,500 38,200 35,100
Allocated common fixed expenses* 184,600 52,200 82,000 50,400
Total fixed expenses 412,600 122,400 167,900 122,300
Net operating income (loss) $ 31,400 $ 20,600 $ 38,100 $ (27,300)

*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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