Structuring a Keep$-$or$-$Drop Product$-$Line Proplem with Complementary Effects

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

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 $$77,000($sales of $$312,000$ less total variable costs of $$235,000).$ 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. In addition, assume that dropping the parquet product line would reduce sales of the strip line by $15\%$ and

sales of the plank line by $5\%.$ All other information remains the same.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required

analysis, and input your answers in the questions below.Required:

If the parquet product line is dropped, what is the contribution margin for the strip line?

$

For the plank line?

$

$x$

Which alternative $($keep or drop the parquet product line$)$ is now more cost effective and by how much?

$$ by $