Car/Truck Repair Small Engines Boats/ Marine Total Sales Revenue $3,500,000 $1,000,000 $4,500,000 $9,000,000 Less: Variable Expenses ($2,000,000) ($250,000) ($4,200,000) ($6,450,000) Contribution Margin $1,500,000 $750,000 $300,000 $2,550,000 Less: Direct Fixed Expenses Garage/Warehouse Rent ($600,000) ($55,000) ($300,000) ($955,000) Supervision ($50,000) ($70,000) ($100,000) ($220,000) Equipment Depreciation ($200,000) ($75,000) ($100,000) ($375,000) Segment Margin $650,000 $550,000 ($200,000) $1,000,000 The boat/marine line is losing money. Management is considering dropping it. The company can avoid the following fixed costs associated with the boat/marine line if the line is dropped: Garage/Warehouse Rent 40.0% Supervision 25.0% Depreciation 0.0% Mark the schedule above with “R” for relevant revenues/costs and “N” for non-relevant revenues/costs associated with the boat/marine line Lay out a segment P&L assuming Halsey drops the boat/marine line. Which decision (keep or drop) generates the largest total margin?
|
|
Car/Truck Repair |
Small Engines |
Boats/ Marine |
Total |
|
|
|
|
|
|
|
Sales Revenue |
$3,500,000 |
$1,000,000 |
$4,500,000 |
$9,000,000 |
|
Less: Variable Expenses |
($2,000,000) |
($250,000) |
($4,200,000) |
($6,450,000) |
|
Contribution Margin |
$1,500,000 |
$750,000 |
$300,000 |
$2,550,000 |
|
Less: Direct Fixed Expenses |
|
|
|
|
|
Garage/Warehouse Rent |
($600,000) |
($55,000) |
($300,000) |
($955,000) |
|
Supervision |
($50,000) |
($70,000) |
($100,000) |
($220,000) |
|
Equipment |
($200,000) |
($75,000) |
($100,000) |
($375,000) |
|
Segment Margin |
$650,000 |
$550,000 |
($200,000) |
$1,000,000 |
The boat/marine line is losing money. Management is considering dropping it.
The company can avoid the following fixed costs associated with the boat/marine line if the line is dropped:
|
Garage/Warehouse Rent |
40.0% |
|
Supervision |
25.0% |
|
Depreciation |
0.0% |
Mark the schedule above with “R” for relevant revenues/costs and “N” for non-relevant revenues/costs associated with the boat/marine line
Lay out a segment P&L assuming Halsey drops the boat/marine line. Which decision (keep or drop) generates the largest total margin?
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