Structuring a Keep-or- Drop Product-Line Problem with Complementary Effects Shown below is a or Mullett Marina's three main boating service lines: segmented income Winter Boat Fuel & Boat Total Storage Concessions Maintenance sles revenue $4,000,000 $1,000,000 $5,000,000 $10,000,000 Less: Variable expenses 2,000,000 200,000 4,900,000 7,100,000 Contribution margin $2,000,000 $ 800,000 $100,000 $2,900,000 Less direct fixed expenses: Garage/warehouse rent 700,000 55,000 350,000 1,105,000 Supervision 50,000 70,000 150,000 270,000 Equipment depreciation 250,000 75,000 100,000 425,000 Segment margin $1,000,000 $ 600,000 $(500,000) $1,100,000 Relevant fixed costs associated with this line include 60% of Boat Maintenance's garage/warehouse rent and 50% of Boat Maintenance's supervision salaries. In addition, assume that dropping the Boat Maintenance service line would reduce sales of the Winter Storage line by 20 % and sales of the Boat Fuel & Concessions line by 10 %. All other information remains the same. Required: 1. If the Boat Maintenance service Iline is dropped, what is the contribution margin for the Boat Fuel & Concessions line? For the Winter Storage line? 1. If the Boat Maintenance service line is dropped, what is the contribution margin for the Boat Fuel & Concessions line? For the Winter Storage line? Contribution Margin Winter storage line Boat fuel & concessions line 2. Which alternative (keep or drop the Boat Maintenance line) is now more cost effective and by how much? Complete the keep or drop analysis to decide between the alternatives. Differential Keep Drop Amount Contribution margin Less: Garage/warehouse rent Supervision Total relevant benefit (loss) The company is better off by s if it keeps the Boat Maintenance line