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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	$	933,000	$	268,000	$	408,000	$	257,000
Variable manufacturing and selling expenses		484,000		119,000		209,000		156,000
Contribution margin		449,000		149,000		199,000		101,000
Fixed expenses:
Advertising, traceable		69,000		8,100		40,300		20,600
Depreciation of special equipment		44,100		20,600		7,500		16,000
Salaries of product-line managers		114,700		40,400		38,100		36,200
Allocated common fixed expenses*		186,600		53,600		81,600		51,400
Total fixed expenses		414,400		122,700		167,500		124,200
Net operating income (loss)	$	34,600	$	26,300	$	31,500	$	(23,200)

*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.) Difference Total If Current Total Racing Bikes Operating Are Dropped Increase or (Decrease) Contribution m (oss) Fixed expenses: Total fixed expenses S OS Net operating income loss) 0 1b. Should production and sale of the racing bikes be discontinued? Yes No 2a. Prepare mented income statement. a seg Totals Dirt Bikes Bikes Bikes Contribution margin (oss) Traceable fixed expenses: Total traceable fixed expenses Net operating income (oss) O 2b Would a segmented income statement format be more usable to management in assessing the long-un profitability of the various product Yes No

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