De Product Line Problem with Complementary Effects Shown below a segmented income statement for Hickory Company's three wooden flooring Strip Plank Parquet Total $400,000 $300,000 $300,000 $900,000 Leis Varabic exp 225,000 120,000 250,000 595,000 Contribution margin $175,000 $60,000 $50,000 $305,000 Les det fed expe (1,000) (20.000) 30,000) 155,000) S Depreciation Sp (15,000) (20.000) (1,000) 8,000) (5000) $120,000 (10,000 $40,000 (25,000) (10,000) (70,000) $150,000 Hory's management deciding whether to keep or drop the part product ne. Hokery's parquet flouring product line has a conduten margin of $50,000 (sales of $300,000 less ta varale costs of $25.000) A variable costs ar remains the same tby 20% and sales of the fed by 20 A he Structuring a Keep-or-Drop Product Line Problem with Complementary Effects Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses: Machine rent (5,000) (20,000) (30,000) (55,000) Supervision (15,000) (10,000) (5,000) (30,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (10,000) $150,000 Hickory's management is deciding whether to keep or drop the parquet product line. Hickory's parquet flooring product line has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Relevant fixed costs associated with this line include 80% of parquet's machine rent and all of parquet's supervision salaries. In addition, assume that dropping the parquet product line would reduce sales of the strip line by 20% and sales of the plank line by 20%. All other information remains the same. Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? For the plank line? 2 2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much? Keep by $