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	$	916,000	$	262,000	$	402,000	$	252,000
Variable manufacturing and selling expenses		463,000		114,000		197,000		152,000
Contribution margin		453,000		148,000		205,000		100,000
Fixed expenses:
Advertising, traceable		69,900		8,500		40,500		20,900
Depreciation of special equipment		43,400		20,600		7,500		15,300
Salaries of product-line managers		115,500		40,900		38,700		35,900
Allocated common fixed expenses*		183,200		52,400		80,400		50,400
Total fixed expenses		412,000		122,400		167,100		122,500
Net operating income (loss)	$	41,000	$	25,600	$	37,900	$	(22,500)

*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