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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 past quarter follow:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	937,000		$	269,000		$	409,000		$	259,000
Variable manufacturing and selling expenses		473,000			116,000			203,000			154,000
Contribution margin		464,000			153,000			206,000			105,000
Fixed expenses:
Advertising, traceable		69,200			8,700			40,100			20,400
Depreciation of special equipment		43,300			20,600			7,500			15,200
Salaries of product-line managers		116,200			40,400			38,900			36,900
Allocated common fixed expenses*		187,400			53,800			81,800			51,800
Total fixed expenses		416,100			123,500			168,300			124,300
Net operating income (loss)	$	47,900		$	29,500		$	37,700		$	(19,300)

*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: Drop or Continue a Product Line Decision

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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