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

 

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.

Sales Variable manufacturing and selling expenses Total Bikes Bikes Bikes $928,000 $268,000 $409,000 $251,000 468,000 114,000 197,000 157,000 Contribution margin 460,000 154,000 212,000 94,000 Fixed expenses: Advertising, traceable 69,700 8,800 40,500 20,400 Depreciation of special equipment 43,000 20,500 7,400 15,100 Salaries of product-line managers 114,600 40,800 38,400 35,400 Allocated common fixed expenses* 185,600 53,600 81,800 50,200 Total fixed expenses 412,900 123,700 168,100 121,100