The regal cycle company manufactures three types of bicycles

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 $300,000 $90,000 $150,000 $60,000
Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000
Contribution margin 180,000 63,000 90,000 27,000
Fixed expenses:
Advertising, traceable 30,000 10,000 14,000 6,000
Depreciation of special equipment 23,000 6,000 9,000 8,000
Salaries of product-line managers 35,000 12,000 13,000 10,000
Allocated common fixed expenses* 60,000 18,000 30,000 12,000
Total fixed expenses 148,000 46,000 66,000 36,000
Net operating income (loss) $32,000 $17,000 $24,000 $(9,000)
*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.


1a. What is the impact on net operating income by discontinuing racing bikes?
1b. Should production and sale of the racing bikes be discontinued? Please indicate yes or 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? Please indicate yes or no.