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 | $ | 926,000 | $ | 261,000 | $ | 410,000 | $ | 255,000 | Variable manufacturing and selling expenses | | 464,000 | | 115,000 | | 199,000 | | 150,000 | | | | | | | | | | Contribution margin | | 462,000 | | 146,000 | | 211,000 | | 105,000 | | | | | | | | | | Fixed expenses: | | | | | | | | | Advertising, traceable | | 69,000 | | 8,200 | | 40,300 | | 20,500 | Depreciation of special equipment | | 43,700 | | 20,900 | | 7,100 | | 15,700 | Salaries of product-line managers | | 114,400 | | 40,600 | | 38,600 | | 35,200 | Allocated common fixed expenses* | | 185,200 | | 52,200 | | 82,000 | | 51,000 | | | | | | | | | | Total fixed expenses | | 412,300 | | 121,900 | | 168,000 | | 122,400 | | | | | | | | | | Net operating income (loss) | $ | 49,700 | $ | 24,100 | $ | 43,000 | $ | (17,400) | | | | | | | | | | | *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. | 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) | | | | Should production and sale of the racing bikes be discontinued? Yes No Prepare a segmented income statement. | totals | Dirt bike | Mountain bikes | Racing bikes | | | | | | | | | | | Contribution margin (loss) | | | | | Fixed expenses: | | | | | | | | | | | | | | | | | | | | Total traceable fixed expenses | | | | | | | | | | | | | | | Net operating income (loss) | | | | | Would a segmented income statement format be more usable to management in assessing the long-run profitability of the various product lines. Yes No | |