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 $ 925,000 $ 264,000 $ 410,000 $ 251,000 Variable manufacturing and selling expenses 470,000 119,000 195,000 156,000 Contribution margin 455,000 145,000 215,000 95,000 Fixed expenses: Advertising, traceable 70,200 8,600 40,900 20,700 Depreciation of special equipment 43,700 20,600 7,700 15,400 Salaries of product-line managers 114,000 40,300 38,600 35,100 Allocated common fixed expenses* 185,000 52,800 82,000 50,200 Total fixed expenses 412,900 122,300 169,200 121,400 Net operating income (loss) $ 42,100 $ 22,700 $ 45,800 $ (26,400) *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.0)

	Current Total	Total If Racing Bikes Are Dropped	Difference: Net Operating Income Increase or (Decrease)
Contribution margin (loss)	0	0	0
Fixed expenses:
Total fixed expenses	0	0	0
Net operating income (loss)	$0	$0	$0

1b. Should production and sale of the racing bikes be discontinued?

Yes

No

2a. Prepare a segmented income statement.

	Totals	Dirt Bikes	Mountain Bikes	Racing Bikes
Contribution margin (loss)	0	0	0	0
Traceable fixed expenses:
Total traceable fixed expenses	0	0	0	0
	0	$0	$0	$0
Net operating income (loss)	$0

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