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	$	926,000	$	266,000	$	405,000	$	255,000
Variable manufacturing and selling expenses		471,000		116,000		202,000		153,000
Contribution margin		455,000		150,000		203,000		102,000
Fixed expenses:
Advertising, traceable		69,700		8,300		40,700		20,700
Depreciation of special equipment		42,900		20,200		7,600		15,100
Salaries of product-line managers		114,800		40,200		38,300		36,300
Allocated common fixed expenses*		185,200		53,200		81,000		51,000
Total fixed expenses		412,600		121,900		167,600		123,100
Net operating income (loss)	$	42,400	$	28,100	$	35,400	$	(21,100)

*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?

1b.	Should production and sale of the racing bikes be discontinued?
2a.	Prepare a segmented income statement.