Shown below is a segmented income statement for Mickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $200,000 $300,000 $900,000 Less: Variable experies $400,000 225,000 $175,000 120,000 250,000 595,000 Contribution margin 5 80,000 $50,000 $305,000 Less direct fixed expenses: Machine rent (30,000) (55,000) (5,000) (15,000) (35,000) (20,000) (10,000) Supervision (5,000) (10,000) Depreciation (25,000) 5(10,000) (30,000) (70,000) $150,000 Segment margin $120,000 $ 40,000 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 tine 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 24% and sales of the plank line by 20%. All other information remains the same Required: 1. It the parquet product lines dropped, what is the contribution margin for the strip line? Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? For the plank line? 64,000 2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much Keep by X Shown below is a segmented income statement for Mickory Company's three wooden flooring product lines: Strip Plank Parquet Total Sales revenue $200,000 $300,000 $900,000 Less: Variable experies $400,000 225,000 $175,000 120,000 250,000 595,000 Contribution margin 5 80,000 $50,000 $305,000 Less direct fixed expenses: Machine rent (30,000) (55,000) (5,000) (15,000) (35,000) (20,000) (10,000) Supervision (5,000) (10,000) Depreciation (25,000) 5(10,000) (30,000) (70,000) $150,000 Segment margin $120,000 $ 40,000 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 tine 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 24% and sales of the plank line by 20%. All other information remains the same Required: 1. It the parquet product lines dropped, what is the contribution margin for the strip line? Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? For the plank line? 64,000 2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much Keep by X
