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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	$	936,000	$	268,000	$	410,000	$	258,000
Variable manufacturing and selling expenses		463,000		118,000		191,000		154,000
Contribution margin		473,000		150,000		219,000		104,000
Fixed expenses:
Advertising, traceable		69,700		8,600		40,600		20,500
Depreciation of special equipment		43,900		20,200		7,900		15,800
Salaries of product-line managers		113,900		40,300		38,000		35,600
Allocated common fixed expenses*		187,200		53,600		82,000		51,600
Total fixed expenses		414,700		122,700		168,500		123,500
Net operating income (loss)	$	58,300	$	27,300	$	50,500	$	(19,500)

*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:

1a.	What is the impact on net operating income by discontinuing racing bikes? (Decreases should be indicated by a minus sign.)
	Current Total Total If Racing Bikes Are Dropped Difference: Net Operating Income Increase or (Decrease) Contribution margin (loss) Fixed expenses: Total fixed expenses Net operating income (loss)

1b.	Should production and sale of the racing bikes be discontinued?
	Yes No

2a.	Prepare a segmented income statement.
	Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses Net operating income (loss) 2b. Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines. Yes No

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