The Regal Cycle Company manufactures three types of bicycles—adirt bike, a mountain bike, and a racing bike. Data on sales andexpenses for the past quarter follow:

	Total			Dirt Bikes			Mountain Bikes			Racing Bikes
Sales	$	921,000		$	266,000		$	403,000		$	252,000
Variable manufacturing and selling expenses		472,000			116,000			202,000			154,000
Contribution margin		449,000			150,000			201,000			98,000
Fixed expenses:
Advertising, traceable		69,900			8,700			40,400			20,800
Depreciation of special equipment		43,800			20,900			7,300			15,600
Salaries of product-line managers		114,600			41,000			38,300			35,300
Allocated common fixed expenses*		184,200			53,200			80,600			50,400
Total fixed expenses		412,500			123,800			166,600			122,100
Net operating income (loss)	$	36,500		$	26,200		$	34,400		$	(24,100)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by theracing bikes and wants a recommendation as to whether or not theline should be discontinued. The special equipment used to produceracing bikes has no resale value and does not wear out.

Required:

1. What is the financial advantage (disadvantage) per quarter ofdiscontinuing the Racing Bikes?

2. Should the production and sale of racing bikes bediscontinued?

3. Prepare a properly formatted segmented income statement thatwould be more useful to management in assessing the long-runprofitability of the various product lines.