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	$	922,000	$	264,000	$	404,000	$	254,000
Variable manufacturing and selling expenses		459,000		114,000		195,000		150,000
Contribution margin		463,000		150,000		209,000		104,000
Fixed expenses:
Advertising, traceable		70,000		8,900		40,100		21,000
Depreciation of special equipment		44,200		20,800		7,500		15,900
Salaries of product-line managers		114,700		40,500		38,900		35,300
Allocated common fixed expenses*		184,400		52,800		80,800		50,800
Total fixed expenses		413,300		123,000		167,300		123,000
Net operating income (loss)	$	49,700	$	27,000	$	41,700	$	(19,000)

*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