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Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation $400,000 225,000 $175,000 (5,000) (15,000) (35,000) $120,000 $200,000 120,000 $ 80,000 (20,000) (10,000) (10,000) $ 40,000 $300,000 250,000 $ 50,000 (30,000) (5,000) (25,000) $ (10,000) $900,000 595,000 $305,000 (55,000) (30,000) (70,000) $150,000 Segment margin Hickory's management's deciding whether to keep or drop the parquet product line. Hickory's parquet flooring product lin has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are

Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation $400,000 225,000 $175,000 (5,000) (15,000) (35,000) $120,000 $200,000 120,000 $ 80,000 (20,000) (10,000) (10,000) $ 40,000 $300,000 250,000 $ 50,000 (30,000) (5,000) (25,000) $ (10,000) $900,000 595,000 $305,000 (55,000) (30,000) (70,000) $150,000 Segment margin Hickory's management's deciding whether to keep or drop the parquet product line. Hickory's parquet flooring product lin has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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< 1. If the parquet product line is dropped, what is the contribution margin for the strip line? 157,500 X For the plank line? 76,000 X 2. Which alternative (Reep or drop the parquet product line) is now more cost effective and by how much? Keep by $ 11,500 X Feedback Check My Work 1. Look at contribution margin and adjust for dropping product line. 2. Set up four columns. First column lists the income statement information starting with contribution margin. Second and third columns are for alternatives, keep or drop, and list all amounts. Fourth column is the differential amount to keep.
Transcribed Image Text:< 1. If the parquet product line is dropped, what is the contribution margin for the strip line? 157,500 X For the plank line? 76,000 X 2. Which alternative (Reep or drop the parquet product line) is now more cost effective and by how much? Keep by $ 11,500 X Feedback Check My Work 1. Look at contribution margin and adjust for dropping product line. 2. Set up four columns. First column lists the income statement information starting with contribution margin. Second and third columns are for alternatives, keep or drop, and list all amounts. Fourth column is the differential amount to keep.
Structuring a Keep-or-Drop Product Line Problem with Complementary Effects Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Parquet $300,000 250,000 $ 50,000 Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation $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 (30,000) (5,000) (25,000) $ (10,000) Total $900,000 595,000 $305,000 (55,000) (30,000) (70,000) $150,000 Segment margin Hickory's management's 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. In addition, assume that dropping the parquet product line would reduce sales of the strip line by 29% and sales of the plank line by 20%. All other information remains the same. Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? 157,500 X
Transcribed Image Text:Structuring a Keep-or-Drop Product Line Problem with Complementary Effects Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Parquet $300,000 250,000 $ 50,000 Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation $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 (30,000) (5,000) (25,000) $ (10,000) Total $900,000 595,000 $305,000 (55,000) (30,000) (70,000) $150,000 Segment margin Hickory's management's 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. In addition, assume that dropping the parquet product line would reduce sales of the strip line by 29% and sales of the plank line by 20%. All other information remains the same. Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? 157,500 X
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