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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	$	927,000	$	267,000	$	408,000	$	252,000
Variable manufacturing and selling expenses		479,000		120,000		200,000		159,000
Contribution margin		448,000		147,000		208,000		93,000
Fixed expenses:
Advertising, traceable		69,400		8,700		40,400		20,300
Depreciation of special equipment		43,200		20,100		7,200		15,900
Salaries of product-line managers		114,400		40,100		38,000		36,300
Allocated common fixed expenses*		185,400		53,400		81,600		50,400
Total fixed expenses		412,400		122,300		167,200		122,900
Net operating income (loss)	$	35,600	$	24,700	$	40,800	$	(29,900)

*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.

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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