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	$	920,000	$	262,000	$	405,000	$	253,000
Variable manufacturing and selling expenses		476,000		113,000		205,000		158,000
Contribution margin		444,000		149,000		200,000		95,000
Fixed expenses:
Advertising, traceable		69,800		8,500		40,500		20,800
Depreciation of special equipment		43,900		20,600		7,600		15,700
Salaries of product-line managers		114,300		40,000		38,700		35,600
Allocated common fixed expenses*		184,000		52,400		81,000		50,600
Total fixed expenses		412,000		121,500		167,800		122,700
Net operating income (loss)	$	32,000	$	27,500	$	32,200	$	(27,700)

*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)	0	0	0
Fixed expenses:
Total fixed expenses	0	0	0
Net operating income (loss)	$0	$0	$0

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)	0	0	0	0
Traceable fixed expenses:
Total traceable fixed expenses	0	0	0	0
	0	$0	$0	$0
Net operating income (loss)	$0

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