Refer to the information for Hickory Company above. Assume that dropping the parquet product line would reduce sales of the strip line by 25 percent and sales of the plank line by 20 percent. All other information remains the same.
Shown below is a segmented income statement for Hickory Company€™s three wooden flooring product lines:

Required:
1. If the parquet product line is dropped, what is the contribution margin for the strip line? For the plank line?
2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much?

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Strip Plank Pague Total Sales revenue Less: Variable expenses Contribution margin Less: Direct fixed expenses $400,000 $200,000 300,000 $900,000 225000120,000 1250000) 595,000 175,000 80,000 50,000 $305,000 Mochine rent Supervision Depreciation (5,000) (20,000) 30,000 (55,000 15,000 (10,000) 35,000(1o (5,000) (30,000 (25,000) (10,000) 0 Segment margin 40,000