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 $ 935,000 $ 268,000 $ 409,000 $ 258,000 Variable manufacturing and selling expenses 460,000 117,000 191,000 152,000 Contribution margin 475,000 151,000 218,000 106,000 Fixed expenses: Advertising, traceable 69,600 8,800 40,100 20,700 Depreciation of special equipment 44,300 21,000 7,300 16,000 Salaries of product-line managers 114,300 40,900 38,300 35,100 Allocated common fixed expenses* 187,000 53,600 81,800 51,600 Total fixed expenses 415,200 124,300 167,500 123,400 Net operating income (loss) $ 59,800 $ 26,700 $ 50,500 $ (17,400) *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.)

b.

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.