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	$	934,000			$	266,000			$	409,000			$	259,000
Variable manufacturing and selling expenses		464,000				117,000				190,000				157,000
Contribution margin		470,000				149,000				219,000				102,000
Fixed expenses:
Advertising, traceable		69,900				8,800				40,600				20,500
Depreciation of special equipment		43,000				20,600				7,100				15,300
Salaries of product-line managers		115,200				40,700				38,600				35,900
Allocated common fixed expenses*		186,800				53,200				81,800				51,800
Total fixed expenses		414,900				123,300				168,100				123,500
Net operating income (loss)	$	55,100			$	25,700			$	50,900			$	(21,500)

*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

Difference: Net Total If Racing Operating Income Increase or (Decrease) Current TotaBikes Are Dropped Contribution margin (loss) Fixed expenses: Total fixed expenses Net operating income (loss) Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses Net operating income (loss)