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he 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 $ 930,000 $ 262,000 $ 409,000 $ 259,000 Variable manufacturing and selling expenses 468,000 119,000 192,000 157,000 Contribution margin 462,000 143,000 217,000 102,000 Fixed expenses: Advertising, traceable 70,500 8,800 41,000 20,700 Depreciation of special equipment 43,300 20,300 7,600 15,400 Salaries of product-line managers 114,500 40,700 38,500 35,300 Allocated common fixed expenses* 186,000 52,400 81,800 51,800 Total fixed expenses 414,300 122,200 168,900 123,200 Net operating income (loss) $ 47,700 $ 20,800 $ 48,100 $ (21,200) *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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