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		$	269,000		$	405,000		$	254,000
Variable manufacturing and selling expenses		477,000			119,000			206,000			152,000
Contribution margin		451,000			150,000			199,000			102,000
Fixed expenses:
Advertising, traceable		70,200			9,000			40,400			20,800
Depreciation of special equipment		44,500			20,800			7,900			15,800
Salaries of product-line managers		114,500			40,000			38,400			36,100
Allocated common fixed expenses*		185,600			53,800			81,000			50,800
Total fixed expenses		414,800			123,600			167,700			123,500
Net operating income (loss)	$	36,200		$	26,400		$	31,300		$	(21,500)

*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?

YES or NO

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.

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 Sales $928,000 Variable manufacturing and selling expenses 477,000 Contribution margin (loss) 451,000 0 0 0 Traceable fixed expenses: Advertising 70,200 Depreciation of special equipment 44,500 Salaries of the product line managers 114,500 Total traceable fixed expenses 229,200 0 0 0 Product line segment margin (loss) 221,800 $0 $0 $0 Common fixed expenses Net operating income (loss) $214,400