The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow Dirt Bikes Mountain Racing Bikes Total $ 917,000 479,000 Bikes 264,000 s 401,000 $252,000 Sales Variable manufacturing and selling 117,000 204,000 158,000 expenses 438,000 147000 94,000 Contribution margin Fixed expenses Advertising, traceable Depreciation of special equipment Salaries of product-line managers 70,300 8,800 40,500 21,000 15,900 115,400 40,300 38,600 36,500 Allocated common fixed expenses 183,400 52,800 80,200 50,400 43,400 20,200 7,300 Total fixed expenses 412,500 122,100 166,600 123,800 Net operating income (loss) $ 25,500 $24,900 30,400 $ (29,800) 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.) Difference: Net Total If Racing Bikes Are Dropped Operating Income Increase or (Decrease) Current Total Contribution margin (loss) Fixed expenses 0 Total fixed expenses Net operating income (loss) 0 1b. Should production and sale of the racing bikes be discontinued? O Yes O N 2a. Prepare a segmented income statement. Totals Dirt Bikes Mountain Bikes Racing Bikes Contribution margin (loss) Traceable fixed expenses: Total traceable fixed expenses 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