Answered: Shown below is a segmented income…

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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Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: Strip Plank Parquet Total $397,000 $212,000 $313,000 $922,000 240,000 110,000 265,000 615,000 $157,000 $102,000 $48,000 $307,000 Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation Segment margin 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 $48,000 (sales of $313,000 less total variable costs of $265,000). All variable costs are relevant. (3,000) (12,000) (47,000) (62,000) (10,500) (7,000) (3,500) (21,000) (35,000) (10,000) (25,000) (70,000) $108,500 $73,000 $(27,500) $154,000 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 20% and sales of the plank line by 5%. All other information remains the same. 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. X Open spreadsheet Required: 1. If the parquet product line is dropped, what is the contribution margin for the strip line? X For the plank line?

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