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	$	924,000	$	264,000	$	402,000	$	258,000
Variable manufacturing and selling expenses		478,000		119,000		203,000		156,000
Contribution margin		446,000		145,000		199,000		102,000
Fixed expenses:
Advertising, traceable		69,200		8,800		40,200		20,200
Depreciation of special equipment		43,800		20,700		8,000		15,100
Salaries of product-line managers		114,600		40,800		38,500		35,300
Allocated common fixed expenses*		184,800		52,800		80,400		51,600
Total fixed expenses		412,400		123,100		167,100		122,200
Net operating income (loss)	$	33,600	$	21,900	$	31,900	$	(20,200)

*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