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:

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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Dirt Bikes Mountain Racing Bikes Total Bikes Sales $300,000 $90,000 $150,000 $60,000 60,000 33,000 90,000 27,000 Variable manufacturing and selling expenses Contribution margin Fixed expenses: 120,000 27,000 .. 180,000 63.000 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 30,000 10.000 6,000 35,000 2,000 60,000 8,000 148,000 46,000 S 32,000 $17.000 6,000 8,000 13,000 10,000 30,000 2,000 66,000 36,000 24,000 $ (9,000) 14,000 9,000 23,000 Total fixed expenses Net operating income (loss). Allocated on the basls of sales dollars.