value: 5.00 points The Regal Cycle Company manufactures three types of bicycles-a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow Dirt Bikes $264,000 116,000 Mountain Bikes $ 406,000 203,000 Racing Bikes $ 252,000 159,000 Total 922,000 478,000 Sales Variable manufacturing and selling expenses Contribution margin 444,000 148,000 203,000 93,000 Fixed expenses: Advertising, traceable Depreciation of special equipment Salaries of product-line managers Allocated common fixed expenses 69,400 44,000 114,800 184,400 8,500 20,600 40,600 52,800 40,200 7,500 38,400 81,200 20,700 15.900 35,800 50,400 Total fixed expenses 412,600 122,500 167,300 122,800 Net operating income (loss) $ 25,500 $ 35,700 $ (29,800) $31,400 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.) Difference: Net Total If Racing Operating Income Increase or (Decrease) Current Total Bikes Are Dropped Sales Variable manufacturing and selling expenses Contribution margin (loss) 0 Fixed expenses Advertising, traceable Depreciation on special equipment Salaries of product managers Common allocated costs Total fixed expenses Net operating income (loss) S 1b. Should production and sale of the racing bikes be discontinued? Yes No 2a. Prepare a segmented income statement. Totals Dirt Bikes Mountain Bilkes Racing Bikes Sales Variable manufacturing and selling expenses Contribution margin (loss) 0 0 0 Traceable fixed expenses: Advertising Depreciation of special equipment Salaries of the product line managers Total traceable fixed expenses 0 0 Product line segment margin $ 0 C Common fixed expenses 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. O Yes No OC