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	$	923,000	$	261,000	$	408,000	$	254,000
Variable manufacturing and selling expenses		471,000		110,000		204,000		157,000
Contribution margin		452,000		151,000		204,000		97,000
Fixed expenses:
Advertising, traceable		69,200		8,400		40,600		20,200
Depreciation of special equipment		43,300		20,400		7,800		15,100
Salaries of product-line managers		114,200		40,300		38,400		35,500
Allocated common fixed expenses*		184,600		52,200		81,600		50,800
Total fixed expenses		411,300		121,300		168,400		121,600
Net operating income (loss)	$	40,700	$	29,700	$	35,600	$	(24,600)

*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