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 $ 933,000 $ 266,000 $ 409,000 $ 258,000 Variable manufacturing and selling expenses 471,000 112,000 204,000 155,000 Contribution margin 462,000 154,000 205,000 103,000 Fixed expenses: Advertising, traceable 70,300 8,600 40,700 21,000 Depreciation of special equipment 43,800 20,900 7,800 15,100 Salaries of product-line managers 113,800 40,400 38,100 35,300 Allocated common fixed expenses* 186,600 53,200 81,800 51,600 Total fixed expenses 414,500 123,100 168,400 123,000 Net operating income (loss) $ 47,500 $ 30,900 $ 36,600 $ (20,000) *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.