Shown below is a segmented income statement for Mullett Marina’s three main boating service lines:

Mullett’s management is deciding whether to keep or drop the Boat Maintenance service line. Mullett’s Boat Maintenance service line has a contribution margin of $400,000 (sales of $6,000,000 less total variable costs of $5,600,000). All variable costs are relevant. Relevant fixed costs associated with this line include 70% of Boat Maintenance’s garage/warehouse rent and 40% of Boat Maintenance’s supervision salaries.

Required:
1. List the alternatives being considered with respect to the Boat Maintenance service line.
2. List the relevant benefits and costs for each alternative.
3. Which alternative is more cost effective and by how much?

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Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Garage/warehouse rent Supervision Equipment depreciation Segment margin Winter Storage $4,000,000 2,000,000 $2,000,000 700,000 50,000 250,000 $1,000,000 Boat Fuel & Boat Concessions Maintenance $1,000,000 200,000 $ 800,000 55,000 70,000 75,000 $ 600,000 Total $6,000,000 $11,000,000 5,600,000 7,800,000 $ 400,000 $ 3,200,000 400,000 550,000 100,000 $ (650,000) $ 1,155,000 670,000 425,000 950,000