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 $ 919,000 $ 265,000 $ 401,000 $ 253,000 Variable manufacturing and selling expenses 465,000 117,000 192,000 156,000 Contribution margin 454,000 148,000 209,000 97,000 Fixed expenses: Advertising, traceable 69,300 8,600 40,300 20,400 Depreciation of special equipment 43,900 20,900 7,300 15,700 Salaries of product-line managers 115,500 40,800 38,000 36,700 Allocated common fixed expenses* 183,800 53,000 80,200 50,600 Total fixed expenses 412,500 123,300 165,800 123,400 Net operating income (loss) $ 41,500 $ 24,700 $ 43,200 $ (26,400) *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.