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	$	931,000	$	265,000	$	407,000	$	259,000
Variable manufacturing and selling expenses		467,000		120,000		193,000		154,000
Contribution margin		464,000		145,000		214,000		105,000
Fixed expenses:
Advertising, traceable		69,200		8,200		40,400		20,600
Depreciation of special equipment		43,600		20,300		7,700		15,600
Salaries of product-line managers		115,100		40,500		38,400		36,200
Allocated common fixed expenses*		186,200		53,000		81,400		51,800
Total fixed expenses		414,100		122,000		167,900		124,200
Net operating income (loss)	$	49,900	$	23,000	$	46,100	$	(19,200)

*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