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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 $ 924,000 $ 264,000 $ 406,000 $ 254,000
Variable manufacturing and selling expenses 466,000 118,000 194,000 154,000
Contribution margin 458,000 146,000 212,000 100,000
Fixed expenses:
Advertising, traceable 70,600 8,700 40,900 21,000
Depreciation of special equipment 43,500 20,300 7,600 15,600
Salaries of product-line managers 116,000 40,900 38,300 36,800
Allocated common fixed expenses* 184,800 52,800 81,200 50,800
Total fixed expenses 414,900 122,700 168,000 124,200
Net operating income (loss) $ 43,100 $ 23,300 $ 44,000 $ (24,200)

*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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