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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	$ 928,000	$ 264,000	$ 410,000	$ 254,000
Variable manufacturing and selling expenses	461,000	114,000	195,000	152,000
Contribution margin	467,000	150,000	215,000	102,000
Fixed expenses:
Advertising, traceable	68,700	8,100	40,300	20,300
Depreciation of special equipment	43,500	20,600	7,700	15,200
Salaries of product-line managers	113,900	40,100	38,100	35,700
Allocated common fixed expenses*	185,600	52,800	82,000	50,800
Total fixed expenses	411,700	121,600	168,100	122,000
Net operating income (loss)	$ 55,300	$ 28,400	$ 46,900	$ (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.

Required 1

Required 2

Required 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.

	Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) 0 0 0 0 Traceable fixed expenses: Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) 0 $0 $0 $0 Net operating income (loss) $0

Should the production and sale of racing bikes be discontinued?

YES OR NO

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.

	Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) 0 0 0 0 Traceable fixed expenses: Total traceable fixed expenses 0 0 0 0 Product line segment margin (loss) 0 $0 $0 $0 Net operating income (loss) $0

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