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	$	921,000	$	262,000	$	404,000	$	255,000
Variable manufacturing and selling expenses		464,000		116,000		193,000		155,000
Contribution margin		457,000		146,000		211,000		100,000
Fixed expenses:
Advertising, traceable		69,700		8,600		40,400		20,700
Depreciation of special equipment		42,800		20,400		7,300		15,100
Salaries of product-line managers		115,500		41,000		38,400		36,100
Allocated common fixed expenses*		184,200		52,400		80,800		51,000
Total fixed expenses		412,200		122,400		166,900		122,900
Net operating income (loss)	$	44,800	$	23,600	$	44,100	$	(22,900)

*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.)

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