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 $ 925,000 $ 269,000 $ 404,000 $ 252,000 Variable manufacturing and selling expenses 485,000 120,000 209,000 156,000 Contribution margin 440,000 149,000 195,000 96,000 Fixed expenses: Advertising, traceable 69,200 8,200 40,300 20,700 Depreciation of special equipment 43,800 20,200 7,700 15,900 Salaries of product-line managers 115,600 40,400 38,700 36,500 Allocated common fixed expenses* 185,000 53,800 80,800 50,400 Total fixed expenses 413,600 122,600 167,500 123,500 Net operating income (loss) $ 26,400 $ 26,400 $ 27,500 $ (27,500) *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.