The Regal Cycle Company manufactures three types of bicycles—adirt bike, a mountain bike, and a racing bike. Data on sales andexpenses for the past quarter follow:

		Total		Dirt Bikes		Mountain Bikes		Racing Bikes
Sales	$	925,000	$	262,000	$	405,000	$	258,000
Variable manufacturing and selling expenses		463,000		113,000		196,000		154,000
Contribution margin		462,000		149,000		209,000		104,000
Fixed expenses:
Advertising, traceable		70,500		9,000		40,800		20,700
Depreciation of special equipment		44,200		20,900		7,800		15,500
Salaries of product-line managers		114,200		40,300		38,400		35,500
Allocated common fixed expenses*		185,000		52,400		81,000		51,600
Total fixed expenses		413,900		122,600		168,000		123,300
Net operating income (loss)	$	48,100	$	26,400	$	41,000	$	(19,300)

*Allocated on the basis of sales dollars.

Management is concerned about the continued losses shown by theracing bikes and wants a recommendation as to whether or not theline should be discontinued. The special equipment used to produceracing bikes has no resale value and does not wear out.

Required:

1a.	What is the impact on net operating income by discontinuingracing bikes? (Decreases should be indicated by a minussign.)

       

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

  

2a.	Prepare a segmented income statement.

       

2b.	Would a segmented income statement format be more usable tomanagement in assessing the long-run profitability of the variousproduct lines.
	Yes No