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	$	928,000	$	266,000	$	406,000	$	256,000
Variable manufacturing and selling expenses		466,000		116,000		198,000		152,000
Contribution margin		462,000		150,000		208,000		104,000
Fixed expenses:
Advertising, traceable		69,600		8,800		40,500		20,300
Depreciation of special equipment		43,800		20,900		7,500		15,400
Salaries of product-line managers		114,800		40,300		38,900		35,600
Allocated common fixed expenses*		185,600		53,200		81,200		51,200
Total fixed expenses		413,800		123,200		168,100		122,500
Net operating income (loss)	$	48,200	$	26,800	$	39,900	$	(18,500)

*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)