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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:

TotalDirt BikesMountain BikesRacing BikesSales$ 922,000$ 269,000$ 401,000$ 252,000Variable manufacturing and selling expenses475,000118,000206,000151,000Contribution margin447,000151,000195,000101,000Fixed expenses: Advertising, traceable70,2008,90040,50020,800Depreciation of special equipment43,60020,2007,80015,600Salaries of product-line managers113,60040,30038,20035,100Allocated common fixed expenses*184,40053,80080,20050,400Total fixed expenses411,800123,200166,700121,900Net operating income (loss)$ 35,200$ 27,800$ 28,300$ (20,900)

*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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