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	$	928,000	$	267,000	$	405,000	$	256,000
Variable manufacturing and selling expenses		469,000		117,000		199,000		153,000
Contribution margin		459,000		150,000		206,000		103,000
Fixed expenses:
Advertising, traceable		69,700		8,400		40,600		20,700
Depreciation of special equipment		43,200		20,100		7,400		15,700
Salaries of product-line managers		115,900		40,900		38,400		36,600
Allocated common fixed expenses*		185,600		53,400		81,000		51,200
Total fixed expenses		414,400		122,800		167,400		124,200
Net operating income (loss)	$	44,600	$	27,200	$	38,600	$	(21,200)

*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