Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines Strip $400,000 225,000 $175,000 Plank $200,000 120,000 80,000 Parquet Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses 300,000 250,000 50,000 Total $900,000 595,000 $305,000 (5,000) (15,000) (35,000) $120,000 (30,000) (5,000) (25,000) (10,000) Machine rent (20,000) (10,000) (10,000) 40,000 (55,000) (30,000) (70,000) $150,000 Supervision Depreciation Segment margin 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 29% 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? 24,250 For the plank line? 64,000 V 2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much? Keep by 74,750 X