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	$	931,000	$	270,000	$	408,000	$	253,000
Variable manufacturing and selling expenses		467,000		112,000		204,000		151,000
Contribution margin		464,000		158,000		204,000		102,000
Fixed expenses:
Advertising, traceable		69,200		8,300		40,200		20,700
Depreciation of special equipment		44,100		20,800		7,300		16,000
Salaries of product-line managers		115,200		40,700		38,100		36,400
Allocated common fixed expenses*		186,200		54,000		81,600		50,600
Total fixed expenses		414,700		123,800		167,200		123,700
Net operating income (loss)	$	49,300	$	34,200	$	36,800	$	(21,700)

*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