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 $ 267,000 $ 402,000 $ 259,000 Variable manufacturing and selling expenses 470,000 113,000 203,000 154,000 Contribution margin 458,000 154,000 199,000 105,000 Fixed expenses: Advertising, traceable 69,300 8,200 40,900 20,200 Depreciation of special equipment 44,200 20,300 7,900 16,000 Salaries of product-line managers 115,500 40,400 38,900 36,200 Allocated common fixed expenses* 185,600 53,400 80,400 51,800 Total fixed expenses 414,600 122,300 168,100 124,200 Net operating income (loss) $ 43,400 $ 31,700 $ 30,900 $ (19,200) *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.)

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 rev