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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 $ 926,000 $ 270,000 $ 405,000 $ 251,000
Variable manufacturing and selling expenses 481,000 116,000 210,000 155,000
Contribution margin 445,000 154,000 195,000 96,000
Fixed expenses:
Advertising, traceable 70,000 8,500 40,600 20,900
Depreciation of special equipment 43,000 20,400 7,200 15,400
Salaries of product-line managers 114,100 40,100 38,200 35,800
Allocated common fixed expenses* 185,200 54,000 81,000 50,200
Total fixed expenses 412,300 123,000 167,000 122,300
Net operating income (loss) $ 32,700 $ 31,000 $ 28,000 $ (26,300)

*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.

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