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:

 	 	Total	 	Dirt
Bikes
Mountain
Bikes
 	Racing
Bikes
  Sales	$	926,000	$	268,000  	$	403,000  	$	255,000
  Variable manufacturing and selling expenses	 	476,000	 	113,000  	 	208,000  	 	155,000

  Contribution margin	 	450,000	 	155,000  	 	195,000  	 	100,000

  Fixed expenses:
    Advertising, traceable	 	68,800	 	8,300  	 	40,100  	 	20,400
    Depreciation of special equipment	 	43,300	 	20,100  	 	7,600  	 	15,600
    Salaries of product-line managers	 	114,100	 	40,200  	 	38,700  	 	35,200
    Allocated common fixed expenses*	 	185,200	 	53,600  	 	80,600  	 	51,000

  Total fixed expenses	 	 411,400	 	122,200  	 	167,000  	 	122,200

  Net operating income (loss)	$	38,600	$	32,800  	$	28,000  	$	(22,200)

*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?

 	No correct

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 correct