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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	$	931,000	$	267,000	$	407,000	$	257,000
Variable manufacturing and selling expenses		471,000		112,000		200,000		159,000
Contribution margin		460,000		155,000		207,000		98,000
Fixed expenses:
Advertising, traceable		69,000		8,200		40,700		20,100
Depreciation of special equipment		43,100		20,400		7,400		15,300
Salaries of product-line managers		115,500		40,400		38,200		36,900
Allocated common fixed expenses*		186,200		53,400		81,400		51,400
Total fixed expenses		413,800		122,400		167,700		123,700
Net operating income (loss)	$	46,200	$	32,600	$	39,300	$	(25,700)

*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.)

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

2a.	Prepare a segmented income statement.

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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