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	$	265,000	$	404,000	$	254,000
Variable manufacturing and selling expenses		473,000		111,000		207,000		155,000
Contribution margin		450,000		154,000		197,000		99,000
Fixed expenses:
Advertising, traceable		69,300		8,600		40,400		20,300
Depreciation of special equipment		43,800		20,800		7,400		15,600
Salaries of product-line managers		114,800		40,900		38,200		35,700
Allocated common fixed expenses*		184,600		53,000		80,800		50,800
Total fixed expenses		412,500		123,300		166,800		122,400
Net operating income (loss)	$	37,500	$	30,700	$	30,200	$	(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.)

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