Shown below is a segmented income statement for Mullett Marina's three main boating service lines: Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Garage/warehouse rent Supervision Equipment depreciation Segment margin Winter Storage $4,000,000 2,000,000 $2,000,000 Boat Fuel & Boat Total Concessions Maintenance $5,000,000 $10,000,000 $1,000,000 200,000 4,900,000 7,100,000 $ 800,000 $ 100,000 $2,900,000 (700,000) (50,000) (250,000) (75,000) (100,000) $1,000,000 $ 600,000 $ (500,000) $1,100,000 (55,000) (70,000) (350,000) (150,000) (1,105,000) (270,000) (425,000) Structuring a Keep-or-Drop Product-Line Problem Refer to the information for Mullett Marina above. Mullett's management is deciding whether to keep or drop the Boat Maintenance service line. Mullett's Boat Maintenance service line has a contribution margin of $100,000 (sales of $5,000,000 less total variable costs of $4,900,000). All variable costs are relevant. Relevant fixed costs associated with this line include 60% of Boat Maintenance's garage/warehouse rent and 50% of Boat Maintenance's supervision salaries. Required: 1. List the alternatives being considered with respect to the Boat Maintenance service line. 2. List the relevant benefits and costs for each alternative. 3. Which alternative is more cost effective and by how much?
Shown below is a segmented income statement for Mullett Marina's three main boating service lines: Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Garage/warehouse rent Supervision Equipment depreciation Segment margin Winter Storage $4,000,000 2,000,000 $2,000,000 Boat Fuel & Boat Total Concessions Maintenance $5,000,000 $10,000,000 $1,000,000 200,000 4,900,000 7,100,000 $ 800,000 $ 100,000 $2,900,000 (700,000) (50,000) (250,000) (75,000) (100,000) $1,000,000 $ 600,000 $ (500,000) $1,100,000 (55,000) (70,000) (350,000) (150,000) (1,105,000) (270,000) (425,000) Structuring a Keep-or-Drop Product-Line Problem Refer to the information for Mullett Marina above. Mullett's management is deciding whether to keep or drop the Boat Maintenance service line. Mullett's Boat Maintenance service line has a contribution margin of $100,000 (sales of $5,000,000 less total variable costs of $4,900,000). All variable costs are relevant. Relevant fixed costs associated with this line include 60% of Boat Maintenance's garage/warehouse rent and 50% of Boat Maintenance's supervision salaries. Required: 1. List the alternatives being considered with respect to the Boat Maintenance service line. 2. List the relevant benefits and costs for each alternative. 3. Which alternative is more cost effective and by how much?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Shown below is a segmented income statement for Mullett Marina's three main boating service lines:
Sales revenue
Less: Variable expenses
Contribution margin
Less direct fixed expenses:
Garage/warehouse rent
Supervision
Equipment depreciation
Segment margin
Winter
Storage
$4,000,000
2,000,000
$2,000,000
(700,000)
(50,000)
(250,000)
Boat Fuel &
Boat
Total
Concessions Maintenance
$5,000,000 $10,000,000
$1,000,000
4,900,000
7,100,000
$ 100,000
$2,900,000
200,000
$ 800,000
(55,000)
(70,000)
(75,000)
(350,000)
(150,000)
(100,000)
$1,000,000 $ 600,000 $ (500,000) $1,100,000
(1,105,000)
(270,000)
(425,000)
Structuring a Keep-or-Drop Product-Line Problem
Refer to the information for Mullett Marina above. Mullett's management is deciding whether to keep
or drop the Boat Maintenance service line. Mullett's Boat Maintenance service line has a contribution
margin of $100,000 (sales of $5,000,000 less total variable costs of $4,900,000). All variable costs are
relevant. Relevant fixed costs associated with this line include 60% of Boat Maintenance's
garage/warehouse rent and 50% of Boat Maintenance's supervision salaries.
Required:
1. List the alternatives being considered with respect to the Boat Maintenance service line.
2. List the relevant benefits and costs for each alternative.
3. Which alternative is more cost effective and by how much?
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