Structuring a Keep$-$or$-$Drop Product Line Problem

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

Line Item Description Strip Plank Parquet Total

Sales revenue $$400,000$ $$200,000$ $$300,000$ $$900,000$

Less: Variable expenses $225,000120,000250,000595,000$

Contribution margin $$175,000$ $ $80,000$ $ $50,000$ $$305,000$

Less direct fixed expenses:

Machine rent $5,00020,00045,00070,000$

Supervision $15,00010,00020,00045,000$

Depreciation $35,00010,00025,00070,000$

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

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 $$250,000).$ All variable costs are relevant. Relevant fixed costs associated with this line include $$45,000$ in machine rent and $$4,900$ in supervision salaries.

Required:

$1.$ List the alternatives being considered with respect to the parquet flooring line.

Drop the parquet flooring line or keep it

$2.$ List the relevant benefits and costs for keeping the parquet flooring line.

Sales, variable cost, supervision cost and machine rent

$3.$ Which alternative is more cost effective and by how much?

Keep

by fill in the blank $1$ of $1$$