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	$	930,000	$	269,000	$	408,000	$	253,000
Variable manufacturing and selling expenses		467,000		116,000		201,000		150,000
Contribution margin		463,000		153,000		207,000		103,000
Fixed expenses:
Advertising, traceable		70,400		8,900		40,600		20,900
Depreciation of special equipment		43,800		20,500		7,600		15,700
Salaries of product-line managers		115,500		40,600		38,600		36,300
Allocated common fixed expenses*		186,000		53,800		81,600		50,600
Total fixed expenses		415,700		123,800		168,400		123,500
Net operating income (loss)	$	47,300	$	29,200	$	38,600	$	(20,500)

*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