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	$	930,000			$	267,000			$	409,000			$	254,000
Variable manufacturing and selling expenses		478,000				114,000				208,000				156,000
Contribution margin		452,000				153,000				201,000				98,000
Fixed expenses:
Advertising, traceable		68,800				8,300				40,200				20,300
Depreciation of special equipment		42,900				20,300				7,400				15,200
Salaries of product-line managers		114,000				40,400				38,600				35,000
Allocated common fixed expenses*		186,000				53,400				81,800				50,800
Total fixed expenses		411,700				122,400				168,000				121,300
Net operating income (loss)	$	40,300			$	30,600			$	33,000			$	(23,300)

*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

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