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	$	933,000	$	268,000	$	406,000	$	259,000
Variable manufacturing and selling expenses		477,000		116,000		203,000		158,000
Contribution margin		456,000		152,000		203,000		101,000
Fixed expenses:
Advertising, traceable		69,900		8,500		40,600		20,800
Depreciation of special equipment		43,600		20,500		7,600		15,500
Salaries of product-line managers		113,800		40,400		38,200		35,200
Allocated common fixed expenses*		186,600		53,600		81,200		51,800
Total fixed expenses		413,900		123,000		167,600		123,300
Net operating income (loss)	$	42,100	$	29,000	$	35,400	$	(22,300)

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

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

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