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 $ 930,000 $ 267,000 $ 408,000 $ 255,000 Variable manufacturing and selling expenses 461,000 112,000 195,000 154,000 Contribution margin 469,000 155,000 213,000 101,000 Fixed expenses: Advertising, traceable 68,700 8,200 40,200 20,300 Depreciation of special equipment 43,900 20,500 7,900 15,500 Salaries of product-line managers 114,700 40,300 38,400 36,000 Allocated common fixed expenses* 186,000 53,400 81,600 51,000 Total fixed expenses 413,300 122,400 168,100 122,800 Net operating income (loss) $ 55,700 $ 32,600 $ 44,900 $ (21,800)

*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.)

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