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	$	919,000	$	262,000	$	401,000	$	256,000
Variable manufacturing and selling expenses		464,000		111,000		197,000		156,000
Contribution margin		455,000		151,000		204,000		100,000
Fixed expenses:
Advertising, traceable		69,500		8,400		40,700		20,400
Depreciation of special equipment		43,300		20,500		7,600		15,200
Salaries of product-line managers		116,400		40,700		38,800		36,900
Allocated common fixed expenses*		183,800		52,400		80,200		51,200
Total fixed expenses		413,000		122,000		167,300		123,700
Net operating income (loss)	$	42,000	$	29,000	$	36,700	$	(23,700)

*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.)

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

1b.

Should production and sale of the racing bikes be discontinued?

	Yes
	No

2a.

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

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