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	$	925,000	$	263,000	$	408,000	$	254,000
Variable manufacturing and selling expenses		478,000		117,000		201,000		160,000
Contribution margin		447,000		146,000		207,000		94,000
Fixed expenses:
Advertising, traceable		69,500		8,700		40,500		20,300
Depreciation of special equipment		43,900		20,500		7,500		15,900
Salaries of product-line managers		115,500		40,400		38,500		36,600
Allocated common fixed expenses*		185,000		52,600		81,600		50,800
Total fixed expenses		413,900		122,200		168,100		123,600
Net operating income (loss)	$	33,100	$	23,800	$	38,900	$	(29,600)

*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.)

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	$	925,000	$	263,000	$	408,000	$	254,000
Variable manufacturing and selling expenses		478,000		117,000		201,000		160,000
Contribution margin		447,000		146,000		207,000		94,000
Fixed expenses:
Advertising, traceable		69,500		8,700		40,500		20,300
Depreciation of special equipment		43,900		20,500		7,500		15,900
Salaries of product-line managers		115,500		40,400		38,500		36,600
Allocated common fixed expenses*		185,000		52,600		81,600		50,800
Total fixed expenses		413,900		122,200		168,100		123,600
Net operating income (loss)	$	33,100	$	23,800	$	38,900	$	(29,600)

*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	$925,000
Variable manufacturing and selling expenses	478,000
Contribution margin (loss)	447,000	0	(447,000)
Fixed expenses:
Total fixed expenses	0	0	0
Net operating income (loss)	$447,000	$0	$(447,000)

2a.	Prepare a segmented income statement.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)	0	0	0	0
Traceable fixed expenses:
Total traceable fixed expenses	0	0	0	0
	0	$0	$0	$0
Net operating income (loss)	$0