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	$	926,000	$	265,000	$	403,000	$	258,000
Variable manufacturing and selling expenses		478,000		118,000		210,000		150,000
Contribution margin		448,000		147,000		193,000		108,000
Fixed expenses:
Advertising, traceable		69,600		8,200		40,400		21,000
Depreciation of special equipment		43,300		20,800		7,300		15,200
Salaries of product-line managers		115,800		40,600		38,900		36,300
Allocated common fixed expenses*		185,200		53,000		80,600		51,600
Total fixed expenses		413,900		122,600		167,200		124,100
Net operating income (loss)	$	34,100	$	24,400	$	25,800	$	(16,100)

*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