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	$	924,000		$	262,000		$	407,000		$	255,000
Variable manufacturing and selling expenses		476,000			120,000			204,000			152,000
Contribution margin		448,000			142,000			203,000			103,000
Fixed expenses:
Advertising, traceable		68,900			8,200			40,300			20,400
Depreciation of special equipment		44,200			20,800			7,500			15,900
Salaries of product-line managers		114,600			40,700			38,600			35,300
Allocated common fixed expenses*		184,800			52,400			81,400			51,000
Total fixed expenses		412,500			122,100			167,800			122,600
Net operating income (loss)	$	35,500		$	19,900		$	35,200		$	(19,600)

*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 bicyclesa 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 $ 924,000 $262,000 $ 407,000 $ 255,000 476,000 120,000 204,000 152,000 448,000 142,000 203,000 103,000 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) 68,900 8, 200 40,300 20,400 44,200 20,800 7,500 15,900 114,600 40,700 38,600 35,300 184,800 52,400 81,400 51,000 412,500 122,100 167,800 122,600 $ 35,500 $ 19,900 $ 35,200 $(19,600) *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 What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes? Required 1 Required 2 Required 3 Should the production and sale of racing bikes be discontinued? Yes No