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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	$	265,000	$	408,000	$	258,000
Variable manufacturing and selling expenses		477,000		114,000		210,000		153,000
Contribution margin		454,000		151,000		198,000		105,000
Fixed expenses:
Advertising, traceable		69,000		8,300		40,100		20,600
Depreciation of special equipment		44,300		21,000		7,400		15,900
Salaries of product-line managers		115,600		40,400		38,200		37,000
Allocated common fixed expenses*		186,200		53,000		81,600		51,600
Total fixed expenses		415,100		122,700		167,300		125,100
Net operating income (loss)	$	38,900	$	28,300	$	30,700	$	(20,100)

*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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