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	$	936,000	$	268,000	$	410,000	$	258,000
Variable manufacturing and selling expenses		463,000		118,000		191,000		154,000
Contribution margin		473,000		150,000		219,000		104,000
Fixed expenses:
Advertising, traceable		69,700		8,600		40,600		20,500
Depreciation of special equipment		43,900		20,200		7,900		15,800
Salaries of product-line managers		113,900		40,300		38,000		35,600
Allocated common fixed expenses*		187,200		53,600		82,000		51,600
Total fixed expenses		414,700		122,700		168,500		123,500
Net operating income (loss)	$	58,300	$	27,300	$	50,500	$	(19,500)

*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.)

	Current Total	Total If Racing Bikes Are Dropped	Difference: Net Operating Income Increase or (Decrease)
Contribution margin (loss)
Fixed expenses:
Total fixed expenses
Net operating income (loss)

1b.

Should production and sale of the racing bikes be discontinued?

	Yes
	No

2a.

Prepare a segmented income statement.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)
Traceable fixed expenses:
Total traceable fixed expenses
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.

	Yes
	No