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 $ 922,000 $ 264,000 $ 408,000 $ 250,000 Variable manufacturing and selling expenses 478,000 120,000 201,000 157,000 Contribution margin 444,000 144,000 207,000 93,000 Fixed expenses: Advertising, traceable 69,000 8,300 40,400 20,300 Depreciation of special equipment 44,100 20,900 7,800 15,400 Salaries of product-line managers 114,700 40,000 38,600 36,100 Allocated common fixed expenses* 184,400 52,800 81,600 50,000 Total fixed expenses 412,200 122,000 168,400 121,800 Net operating income (loss) $ 31,800 $ 22,000 $ 38,600 $ (28,800) *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