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	$	269,000	$	401,000	$	258,000
Variable manufacturing and selling expenses		476,000		120,000		205,000		151,000
Contribution margin		452,000		149,000		196,000		107,000
Fixed expenses:
Advertising, traceable		69,100		8,100		40,800		20,200
Depreciation of special equipment		43,900		20,300		7,800		15,800
Salaries of product-line managers		114,600		40,800		38,600		35,200
Allocated common fixed expenses*		185,600		53,800		80,200		51,600
Total fixed expenses		413,200		123,000		167,400		122,800
Net operating income (loss)	$	38,800	$	26,000	$	28,600	$	(15,800)

*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