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	$	923,000	$	266,000	$	407,000	$	250,000
Variable manufacturing and selling expenses		476,000		117,000		205,000		154,000
Contribution margin		447,000		149,000		202,000		96,000
Fixed expenses:
Advertising, traceable		70,200		8,800		40,900		20,500
Depreciation of special equipment		43,700		20,200		7,800		15,700
Salaries of product-line managers		114,400		40,200		38,300		35,900
Allocated common fixed expenses*		184,600		53,200		81,400		50,000
Total fixed expenses		412,900		122,400		168,400		122,100
Net operating income (loss)	$	34,100	$	26,600	$	33,600	$	(26,100)

*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