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	$	925,000	$	266,000	$	406,000	$	253,000
Variable manufacturing and selling expenses		476,000		114,000		209,000		153,000
Contribution margin		449,000		152,000		197,000		100,000
Fixed expenses:
Advertising, traceable		69,000		8,300		40,300		20,400
Depreciation of special equipment		43,800		20,800		7,600		15,400
Salaries of product-line managers		114,200		40,100		38,500		35,600
Allocated common fixed expenses*		185,000		53,200		81,200		50,600
Total fixed expenses		412,000		122,400		167,600		122,000
Net operating income (loss)	$	37,000	$	29,600	$	29,400	$	(22,000)

*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