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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	$	938,000		$	268,000		$	410,000		$	260,000
Variable manufacturing and selling expenses		469,000			119,000			200,000			150,000
Contribution margin		469,000			149,000			210,000			110,000
Fixed expenses:
Advertising, traceable		69,200			8,300			40,500			20,400
Depreciation of special equipment		42,800			20,200			7,400			15,200
Salaries of product-line managers		114,600			40,000			38,200			36,400
Allocated common fixed expenses*		187,600			53,600			82,000			52,000
Total fixed expenses		414,200			122,100			168,100			124,000
Net operating income (loss)	$	54,800		$	26,900		$	41,900		$	(14,000)

*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.

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

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