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The Regal Cycle Company manufactures three types of bicycles$$a dirt bike, a mountain bike, and a road bike. Data on sales and expenses for the past quarter follow:

Total Dirt Bikes Mountain Bikes Road Bikes

Revenues $ $390,000$ $ $117,000$ $ $195,000$ $ $78,000$

Variable expenses $147,00036,00069,00042,000$

Contribution margin $243,00081,000126,00036,000$

Fixed expenses:

Advertising, traceable $35,40011,80015,8007,800$

Depreciation of special equipment $28,4007,80010,8009,800$

Salaries of product line managers $42,20013,80014,80013,600$

Allocated common fixed expenses$*78,00023,40039,00015,600$

Total fixed expenses $184,00056,80080,40046,800$

Operating income $($loss$)$ $ $59,000$ $ $24,200$ $ $45,600$ $ $(10,800)$

$*$Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by the road bikes and wants a recommendation as to whether the line should be discontinued. The special equipment used to produce road bikes has no resale value and does not wear out.

Required:

What is the financial advantage $($disadvantage$)$ per quarter of discontinuing the road bikes?

Should the production and sale of road bikes be discontinued?

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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