Hickorys management is deciding whether to keep or drop the

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Reference no: EM13589283

Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines:

Strip Plank Parquet Total

Sales Revenue $440,000 $200,000 $300,000 $900,000

Less: Variable Exps 225,000 120,000 250,000 595,000

Contribution Margin 175,000 80,000 50,000 305,000

Less direct fixed expenses:

Machine rent (5,000) (20,000) (50,000) (75,000)

Supervision (15,000) (10,000) (20,000) (45,000)

Depreciation (35,000) (10,000) (25,000) (70,000)

Segment margin $120,000 40,000 (45,000) 115,000

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 line include 80% of parquet's machine rent and all of parquet's supervision salaries.

1. Which alternative is more cost effective? Drop the parquet flooring line.

2. By how much? $____?

Reference no: EM13589283

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