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 $ 918,000 $ 263,000 $ 401,000 $ 254,000 Variable manufacturing and selling expenses 479,000 114,000 207,000 158,000 Contribution margin 439,000 149,000 194,000 96,000 Fixed expenses: Advertising, traceable 69,100 8,400 40,100 20,600 Depreciation of special equipment 43,200 20,600 7,500 15,100 Salaries of product-line managers 115,400 40,500 38,500 36,400 Allocated common fixed expenses* 183,600 52,600 80,200 50,800 Total fixed expenses 411,300 122,100 166,300 122,900 Net operating income (loss) $ 27,700 $ 26,900 $ 27,700 $ (26,900) *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.

The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow: Dirt Mountain Racing Total Bikes Bikes Bikes $ 918,000 $263,000 $ 401,000 $ 254,000 479,000 114,000 207,000 158,000 439,000 149,000 194,000 96,000 Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* Total fixed expenses Net operating income (loss) 69, 100 8,400 40,100 20,600 43,200 20,600 7,500 15,100 115,400 40,500 38,500 36,400 183,600 52,600 80, 200 50,800 411,300 122, 100 166,300 122,900 $ 27,700 $ 26,900 $ 27,700 $(26,900) *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. Required 1 Required 2 Required 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)