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	$	927,000	$	267,000	$	404,000	$	256,000
Variable manufacturing and selling expenses		472,000		119,000		201,000		152,000
Contribution margin		455,000		148,000		203,000		104,000
Fixed expenses:
Advertising, traceable		69,600		8,700		40,700		20,200
Depreciation of special equipment		43,400		21,000		7,200		15,200
Salaries of product-line managers		115,000		40,500		38,600		35,900
Allocated common fixed expenses*		185,400		53,400		80,800		51,200
Total fixed expenses		413,400		123,600		167,300		122,500
Net operating income (loss)	$	41,600	$	24,400	$	35,700	$	(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.)

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