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	$	917,000	$	262,000	$	404,000	$	251,000
Variable manufacturing and selling expenses		468,000		116,000		201,000		151,000
Contribution margin		449,000		146,000		203,000		100,000
Fixed expenses:
Advertising, traceable		69,700		8,500		40,900		20,300
Depreciation of special equipment		43,900		20,400		7,600		15,900
Salaries of product-line managers		116,000		40,300		38,700		37,000
Allocated common fixed expenses*		183,400		52,400		80,800		50,200
Total fixed expenses		413,000		121,600		168,000		123,400
Net operating income (loss)	$	36,000	$	24,400	$	35,000	$	(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.)

	Current Total	Total If Racing Bikes Are Dropped	Difference: Net Operating Income Increase or (Decrease)
Sales
Variable manufacturing and selling expenses
Contribution margin (loss)	0	0	0
Fixed expenses:
Advertising, traceable
Depreciation on special equipment
Salaries of product managers
Common allocated costs
Total fixed expenses	0	0	0
Net operating income (loss)	$0	$0	$0

2a.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales
Variable manufacturing and selling expenses
Contribution margin (loss)	0	0	0	0
Traceable fixed expenses:
Advertising
Depreciation of special equipment
Total traceable fixed expenses	0	0	0	0
	0	$0	$0	$0
Net operating income (loss)	$0

Prepare a segmented income statement