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:

The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow Mountain Racing Bikes $931,000 $ 267,000 $ 406,000 $ 258,000 477,000 118,000 202,000 157,000 Dirt Bikes Total Bikes Sales Variable manufacturing and selling expenses Contribution margin Fixed expenses 454,000 149,000 204,000 101,000 69,400 43.900 115,600 186,200 8.400 20,900 40,300 53.400 40.100 7.500 38,900 81,200 Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses* 20,900 15.500 36.400 51,600 Total fixed expenses 415,100 23,000 167,700 124,400 Net operating income (loss) S 38,900 S 26,000 $ 36,300 (23,400) 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.) Difference: Net Operating Income Increase or (Decrease Total If Current Total Racing Bikes Are Dropped Contribution margin (loss) Fixed expenses Total fixed expenses Net operating income (loss) 0 $ 0 1b. Should production and sale of the racing bikes be discontinued? es 0 2a. Prepare a segmented income statement Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses Total traceable fixed expenses O S 0 S 0 S Net operating income (loss) 2b. Would a segmented income statement format be more usable to management in assessing the long- run profitability of the various product lines O Yes 0