Structuring a keep-or-Drop Product-Line Problem Shown below is a segmented income statement for Mullett Marina's three main boating service lines: Winter Boat Fuel & Boat Total Storage Concessions Maintenance Sales 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 Mullett's management is deciding whether to keep or drop the Boat Maintenance service line. Mullett's Boat Maintenance service line has a contribution margin of $100,000 (sales of $5,000,000 less total variable costs of $4,900,000). All variable costs are relevant. Relevant fixed costs associated with this line include 60% of Boat Maintenance's garage/warehouse rent and 50% of Boat Maintenance's supervision salaries. Required: to the Boat Maintenance service line. 1. Select the alternatives being considered with Keep or drop the boat maintenance line 2. List the relevant benefits and costs for each alternative. Note: Enter all amounts as positive numbers except loss, if applicable. Boat Maintenance Keep Differential Amount Drop Sales X Less: Variable expenses x Contribution margin X x X Less: Garage/warehouse rent* Supervision X Total relevant benefit (loss) X 3. Which alternative is more cost effective? Drop the boat maintenance line