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:

Sales	$ 923,000	$ 269,000	$ 401,000	$ 253,000
Variable manufacturing and selling expenses	458,000	113,000	195,000	150,000
Contribution margin	465,000	156,000	206,000	103,000
Fixed expenses:
Advertising, traceable	70,100	9,000	40,400	20,700
Depreciation of special equipment	44,100	20,700	7,500	15,900
Salaries of product-line managers	115,300	40,100	38,800	36,400
Allocated common fixed expenses*	184,600	53,800	80,200	50,600
Total fixed expenses	414,100	123,600	166,900	123,600
Net operating income (loss)	$ 50,900	$ 32,400	$ 39,100	$ (20,600)

*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.

• Required 1
• Required 2
• Required 3

What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

required 1:

What is the financial advantage (disadvantage) per quarter of discontinuing the Racing Bikes?

required 2:

Should the production and sale of racing bikes be discontinued?

	Yesradio button unchecked1 of 2 Noradio button unchecked2 of 2

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
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
Product line segment margin (loss)
Net operating income (loss)