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	$ 928,000	$ 264,000	$ 405,000	$ 259,000
Variable manufacturing and selling expenses	483,000	118,000	208,000	157,000
Contribution margin	445,000	146,000	197,000	102,000
Fixed expenses:
Advertising, traceable	68,900	8,400	40,100	20,400
Depreciation of special equipment	43,500	20,300	8,000	15,200
Salaries of product-line managers	114,600	40,800	38,200	35,600
Allocated common fixed expenses*	185,600	52,800	81,000	51,800
Total fixed expenses	412,600	122,300	167,300	123,000
Net operating income (loss)	$ 32,400	$ 23,700	$ 29,700	$ (21,000)

*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.

What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

• Should the production and sale of racing bikes be discontinued?

  	Yes No

• 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)