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	$	268,000	$	403,000	$	255,000
Variable manufacturing and selling expenses		476,000		113,000		208,000		155,000
Contribution margin		450,000		155,000		195,000		100,000
Fixed expenses:
Advertising, traceable		68,800		8,300		40,100		20,400
Depreciation of special equipment		43,300		20,100		7,600		15,600
Salaries of product-line managers		114,100		40,200		38,700		35,200
Allocated common fixed expenses*		185,200		53,600		80,600		51,000
Total fixed expenses		411,400		122,200		167,000		122,200
Net operating income (loss)	$	38,600	$	32,800	$	28,000	$	(22,200)

*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