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

Refer to the information for Hickory Company above. 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.

Required:
1. List the alternatives being considered with respect to the parquet flooring line.
2. List the relevant benefits and costs for each alternative.
3. Which alternative is more cost effective and by how much?

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Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation Segment margin Strip $400,000 225,000 $175,000 5,000 15,000 35,000 $120,000 Plank $200,000 120,000 $ 80,000 20,000 10,000 10,000 $ 40,000 Parquet $300,000 250,000 $ 50,000 50,000 20,000 25,000 $(45,000) Total $900,000 595,000 $305,000 75,000 45,000 70,000 $115,000