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	$ 919,000	$ 265,000	$ 403,000	$ 251,000
Variable manufacturing and selling expenses	469,000	118,000	200,000	151,000
Contribution margin	450,000	147,000	203,000	100,000
Fixed expenses:
Advertising, traceable	69,700	8,600	40,300	20,800
Depreciation of special equipment	44,100	20,400	7,900	15,800
Salaries of product-line managers	114,900	40,200	38,400	36,300
Allocated common fixed expenses*	183,800	53,000	80,600	50,200
Total fixed expenses	412,500	122,200	167,200	123,100
Net operating income (loss)	$ 37,500	$ 24,800	$ 35,800	$ (23,100)

*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.

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)

What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Should the production and sale of racing bikes be discontinued