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 $ 922,000 $ 262,000 $ 404,000 $ 256,000 Variable manufacturing and selling expenses 462,000 112,000 197,000 153,000 Contribution margin 460,000 150,000 207,000 103,000 Fixed expenses: Advertising, traceable 69,700 8,400 40,800 20,500 Depreciation of special equipment 43,500 20,200 7,500 15,800 Salaries of product-line managers 114,200 40,100 38,300 35,800 Allocated common fixed expenses* 184,400 52,400 80,800 51,200 Total fixed expenses 411,800 121,100 167,400 123,300 Net operating income (loss) $ 48,200 $ 28,900 $ 39,600 $ (20,300)

*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.