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	$	935,000	$	268,000	$	407,000	$	260,000
Variable manufacturing and selling expenses		456,000		113,000		190,000		153,000
Contribution margin		479,000		155,000		217,000		107,000
Fixed expenses:
Advertising, traceable		69,100		8,200		40,400		20,500
Depreciation of special equipment		43,300		20,300		7,400		15,600
Salaries of product-line managers		115,800		40,800		38,300		36,700
Allocated common fixed expenses*		187,000		53,600		81,400		52,000
Total fixed expenses		415,200		122,900		167,500		124,800
Net operating income (loss)	$	63,800	$	32,100	$	49,500	$	(17,800)

*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