Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip $402,000 220,000 $182,000 $68,000 Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation (5,000) (19,500) (24,500) $133,000 2. 120,000 For the plank line? $fill in the blank 3 Plank (20,000) (13,000) (7,000) Segment margin $28,000 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 $56,000 (sales of $301,000 less total variable costs of $245,000). All variable costs are relevant. $188,000 DropKeep by $fill in the blank 5 245,000 $56,000 Parquet $301,000 585,000 $306,000 (54,000) (6,500) (17,500) $(22,000) (79,000) (39,000) (49,000) $139,000 Total Relevant fixed costs associated with this line include 70% 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 10%. All other information remains the same. $891,000 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. Open spreadsheet Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? $fill in the blank 2 Which alternative (keep or drop the parquet product line) is now more cost effective and by how much?
Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip $402,000 220,000 $182,000 $68,000 Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation (5,000) (19,500) (24,500) $133,000 2. 120,000 For the plank line? $fill in the blank 3 Plank (20,000) (13,000) (7,000) Segment margin $28,000 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 $56,000 (sales of $301,000 less total variable costs of $245,000). All variable costs are relevant. $188,000 DropKeep by $fill in the blank 5 245,000 $56,000 Parquet $301,000 585,000 $306,000 (54,000) (6,500) (17,500) $(22,000) (79,000) (39,000) (49,000) $139,000 Total Relevant fixed costs associated with this line include 70% 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 10%. All other information remains the same. $891,000 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. Open spreadsheet Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? $fill in the blank 2 Which alternative (keep or drop the parquet product line) is now more cost effective and by how much?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines:
Total
Strip
$891,000
Sales revenue
Less: Variable expenses
Contribution margin
Less direct fixed
expenses:
Machine rent
Supervision
Depreciation
$402,000
220,000
$182,000
2.
(5,000)
(19,500)
(24,500)
$133,000
(20,000)
(13,000)
(7,000)
Segment margin
$28,000
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 $56,000 (sales of $301,000 less total variable costs of
$245,000). All variable costs are relevant.
120,000
$68,000
For the plank line?
$fill in the blank 3
Plank
$188,000
DropKeep
by $fill in the blank 5.
Parquet
$301,000
245,000
585,000
$56,000 $306,000
(54,000)
(6,500)
(17,500)
$(22,000)
Relevant fixed costs associated with this line include 70% 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 10%. All other information remains the same.
(79,000)
(39,000)
(49,000)
$139,000
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.
Open spreadsheet
Required:
1.
If the parquet product line is dropped, what is the contribution margin for the strip line?
$fill in the blank 2
Which alternative (keep or drop the parquet product line) is now more cost effective and by how
much?
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