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		$	407,000		$	258,000
Variable manufacturing and selling expenses		475,000			117,000			200,000			158,000
Contribution margin		452,000			145,000			207,000			100,000
Fixed expenses:
Advertising, traceable		69,400			8,200			40,300			20,900
Depreciation of special equipment		44,700			21,000			7,900			15,800
Salaries of product-line managers		114,400			40,100			38,700			35,600
Allocated common fixed expenses*		185,400			52,400			81,400			51,600
Total fixed expenses		413,900			121,700			168,300			123,900
Net operating income (loss)	$	38,100		$	23,300		$	38,700		$	(23,900)

*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.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3

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?

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.

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.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)