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	$	266,000	$	407,000	$	258,000
Variable manufacturing and selling expenses		459,000		115,000		191,000		153,000
Contribution margin		472,000		151,000		216,000		105,000
Fixed expenses:
Advertising, traceable		69,400		8,500		40,200		20,700
Depreciation of special equipment		43,600		20,500		7,300		15,800
Salaries of product-line managers		115,600		40,400		38,900		36,300
Allocated common fixed expenses*		186,200		53,200		81,400		51,600
Total fixed expenses		414,800		122,600		167,800		124,400
Net operating income (loss)	$	57,200	$	28,400	$	48,200	$	(19,400)

*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