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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 $ 928,000 $ 264,000 $ 409,000 $ 255,000
Variable manufacturing and selling expenses 464,000 112,000 196,000 156,000
Contribution margin 464,000 152,000 213,000 99,000
Fixed expenses:
Advertising, traceable 69,300 8,200 40,200 20,900
Depreciation of special equipment 44,100 20,900 7,300 15,900
Salaries of product-line managers 114,300 40,600 38,100 35,600
Allocated common fixed expenses* 185,600 52,800 81,800 51,000
Total fixed expenses 413,300 122,500 167,400 123,400
Net operating income (loss) $ 50,700 $ 29,500 $ 45,600 $ (24,400)

*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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