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	$	266,000	$	401,000	$	253,000
Variable manufacturing and selling expenses		471,000		117,000		197,000		157,000
Contribution margin		449,000		149,000		204,000		96,000
Fixed expenses:
Advertising, traceable		69,200		8,100		40,400		20,700
Depreciation of special equipment		44,200		21,000		7,800		15,400
Salaries of product-line managers		114,500		40,500		38,400		35,600
Allocated common fixed expenses*		184,000		53,200		80,200		50,600
Total fixed expenses		411,900		122,800		166,800		122,300
Net operating income (loss)	$	37,100	$	26,200	$	37,200	$	(26,300)

*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)
Sales	$920,000
Variable manufacturing and selling expenses	471,000
Contribution margin (loss)	449,000	0	0
Fixed expenses:
Advertising, traceable	69,200
Depreciation on special equipment	44,200
Salaries of product managers	114,500
Common allocated costs	184,000
Total fixed expenses	411,900	0	0
Net operating income (loss)	$37,100	$0	$0

2a.

Prepare a segmented income statement.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Sales
Variable manufacturing and selling expenses
Contribution margin (loss)	0	0	0	0
Traceable fixed expenses:
Advertising
Depreciation of special equipment
Salaries of the product line managers
Total traceable fixed expenses	0	0	0	0
Product line segment margin	0	$0	$0	$0
Common fixed expenses
Net operating income (loss)	$0