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:

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.

Dirt Bikes Mountain Racing Bikes Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses: $. 925,000 $266,000 $.406,000 $. 253,000 152,000 101,000 475,000 118,000 450,000 148,000 205,000 201,000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 8,400 44,300 20,600 113,700 40,70 53,200 412,200 122,900 $ 37,800 25,100 69,200 40,600 20,200 15,900 35,000 50,600 121,700 33,400 $(20,700) 7,800 38,000 81,200 167,600 185,000 Total fixed expenses Net operating income (loss) Allocated on the basis of sales dollars