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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	$	916,000	$	262,000	$	401,000	$	253,000
Variable manufacturing and selling expenses		466,000		117,000		194,000		155,000
Contribution margin		450,000		145,000		207,000		98,000
Fixed expenses:
Advertising, traceable		69,900		8,800		40,500		20,600
Depreciation of special equipment		44,200		20,800		7,500		15,900
Salaries of product-line managers		115,600		40,900		38,500		36,200
Allocated common fixed expenses*		183,200		52,400		80,200		50,600
Total fixed expenses		412,900		122,900		166,700		123,300
Net operating income (loss)	$	37,100	$	22,100	$	40,300	$	(25,300)

*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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