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	$	932,000	$	269,000	$	408,000	$	255,000
Variable manufacturing and selling expenses		475,000		111,000		208,000		156,000
Contribution margin		457,000		158,000		200,000		99,000
Fixed expenses:
Advertising, traceable		69,500		8,600		40,600		20,300
Depreciation of special equipment		44,400		20,500		8,000		15,900
Salaries of product-line managers		114,900		40,200		38,600		36,100
Allocated common fixed expenses*		186,400		53,800		81,600		51,000
Total fixed expenses		415,200		123,100		168,800		123,300
Net operating income (loss)	$	41,800	$	34,900	$	31,200	$	(24,300)

*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