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The Regal Cycle Company manufactures three types of bicycles$$a 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 $ $926,000$ $ $262,000$ $ $407,000$ $ $257,000$

Variable manufacturing and selling expenses $463,000112,000194,000157,000$

Contribution margin $463,000150,000213,000100,000$

Fixed expenses:

Advertising, traceable $69,3008,30040,30020,700$

Depreciation of special equipment $44,20020,4007,90015,900$

Salaries of product$-$line managers $114,40040,30038,60035,500$

Allocated common fixed expenses$*185,20052,40081,40051,400$

Total fixed expenses $413,100121,400168,200123,500$

Net operating income $($loss$)$ $ $49,900$ $ $28,600$ $ $44,800$ $ $(23,500)$

$*$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?

$3.$ 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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