The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a…

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:

Total
Dirt
Bikes
Mountain Bikes
Racing
Bikes

Sales
$
922,000

$
266,000

$
404,000

$
252,000

Variable manufacturing and selling expenses

477,000

118,000

200,000

159,000

Contribution margin

445,000

148,000

204,000

93,000

Fixed expenses:

Advertising, traceable

69,500

8,500

40,500

20,500

Depreciation of special equipment

43,300

20,200

7,700

15,400

Salaries of product-line managers

114,800

41,000

38,500

35,300

Allocated common fixed expenses*

184,400

53,200

80,800

50,400

Total fixed expenses

412,000

122,900

167,500

121,600

Net operating income (loss)
$
33,000

$
25,100

$
36,500

$
(28,600)

*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.