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	$	918,000	$	264,000	$	401,000	$	253,000
Variable manufacturing and selling expenses		470,000		115,000		201,000		154,000
Contribution margin		448,000		149,000		200,000		99,000
Fixed expenses:
Advertising, traceable		69,600		8,400		40,900		20,300
Depreciation of special equipment		43,200		20,400		7,500		15,300
Salaries of product-line managers		114,600		40,200		38,300		36,100
Allocated common fixed expenses*		183,600		52,800		80,200		50,600
Total fixed expenses		411,000		121,800		166,900		122,300
Net operating income (loss)	$	37,000	$	27,200	$	33,100	$	(23,300)

*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