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

$ 920,000 $ 264,000 $ 401,000 $ 255,000

Variable manufacturing and selling expenses

461,000 112,000 190,000 159,000

Contribution margin

459,000 152,000 211,000 96,000

Fixed expenses:

Advertising, traceable

69,400 9,000 40,300 20,100

Depreciation of special equipment

43,200 20,600 7,300 15,300

Salaries of product-line managers

115,300 40,500 39,000 35,800

Allocated common fixed expenses*

184,000 52,800 80,200 51,000

Total fixed expenses

411,900 122,900 166,800 122,200

Net operating income (loss)

$ 47,100 $ 29,100 $ 44,200 $ (26,200)

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