I. Keep-or-Drop Decision Hannah Hangloose manufactures surf boards by hand and sells them to locals and tourists on three different Hawaiian islands. Shown below is a segmented income statement for Hannah Hangloose's three geographic sales regions: Kauai Oahu Hawaii Total Sales revenue $700,000 $250,000 $550,000 $1,500,000 Less: Variable expenses 140,000 50,000 110,000 $300,000 Contribution margin 560,000 $200,000 $440,000 $1,200,000 Less direct fixed expenses: Promotional Efforts (275,000) (225,000) (250,000) (5750,000) Depreciation (25,000) (10,000) (15,000) ($50,000) Segment margin $260,000 ($35,000) $175,000 $400,000 The Oahu market has a contribution margin of $200,000 (sales of $250,000 minus total variable costs of $50,000). All variable costs are relevant. Relevant fixed costs associated with this line include $225,000 in various Promotional Efforts to advertise the Hannah brand in the Oahu market. Requirements: 1. What is/are the appropriate alternative(s) that should be considered with respect to the Oahu market based on the financial information provided above? Check all that apply. Reduce the amount of sales to the Oahu market by 10% Increase the amount of sales to the Oahu market by 10% Keep the Oahu market (i.e., to keep selling in this market) Drop the Oahu market (i.e., no longer sell in this market) Points 1/1 2. Which of the following are the relevant benefits or costs in the decision making process if Oahu market is kept? Check all that apply. 2. Which of the following are the relevant benefits or costs in the decision making process if Oahu market is kept? Check all that apply. Sales of $250,000 Variable costs of $50,000 O Depreciation costs of $10,000 Promotional Effort costs of $225,000 Points: | 1/1 3. Which alternative more cost effective and by how much? Differential Keep Drop Amount to keep Sales $ $ Less: Variable expenses $ $ Contribution margin $ $ Less: Promotional efforts $ $ Total relevant benefit (loss) $ $ Points: 0 / 11 The difference is $ in favor of dropping the Oahu market. Points 0/1