Structuring a Keep-or-Drop Product Line Problem

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

StripPlankParquetTotalSales revenue$400,000$200,000$300,000$900,000Less: Variable expenses225,000120,000250,000595,000Contribution margin$175,000$ 80,000$ 50,000$305,000Less 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 $30,000 in machine rent and $4,700 in supervision salaries.

Required:

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

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

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

by $fill in the blank 4