Shown below is a segmented income statement for Mullett Marina’s three main boating service lines: Winter Storage Boat Fuel & Concessions Boat Maintenance Total Sales revenue $4,000,000 $1,000,000 $5,000,000 $10,000,000 Less: Variable expenses 2,000,000 200,000 4,900,000 7,100,000 Contribution margin $2,000,000 $ 800,000 $ 100,000 $2,900,000 Less direct fixed expenses: Garage/warehouse rent 700,000 55,000 350,000 1,105,000 Supervision 50,000 70,000 150,000 270,000 Equipment depreciation 250,000 75,000 100,000 425,000 Segment margin $1,000,000 $ 600,000 $ (500,000) $1,100,000 Relevant fixed costs associated with this line include 60% of Boat Maintenance’s garage/warehouse rent and 50% of Boat Maintenance’s supervision salaries. In addition, assume that dropping the Boat Maintenance service line would reduce sales of the Winter Storage line by 20% and sales of the Boat Fuel & Concessions line by 10%. All other information remains the same. Required: 1. If the Boat Maintenance service line is dropped, what is the contribution margin for the Boat Fuel & Concessions line? For the Winter Storage line? Contribution Margin Winter storage line $fill in the blank 1 Boat fuel & concessions line $fill in the blank 2 2. Which alternative (keep or drop the Boat Maintenance line) is now more cost effective and by how much? Complete the keep or drop analysis to decide between the alternatives. Keep Drop Differential Amount Contribution margin $fill in the blank 3 $fill in the blank 4 $fill in the blank 5 Less: Garage/warehouse rent fill in the blank 6 fill in the blank 7 fill in the blank 8 Supervision fill in the blank 9 fill in the blank 10 fill in the blank 11 Total relevant benefit (loss) $fill in the blank 12 $fill in the blank 13 $fill in the blank 14 The company is better off by $fill in the blank 15 if it the Boat Maintenance line.

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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Question

Shown below is a segmented income statement for Mullett Marina’s three main boating service lines:

	Winter Storage		Boat Fuel & Concessions		Boat Maintenance	Total
Sales revenue	$4,000,000		$1,000,000		$5,000,000	$10,000,000
Less: Variable expenses	2,000,000	200,000	4,900,000	7,100,000
Contribution margin	$2,000,000	$ 800,000	$ 100,000	$2,900,000
Less direct fixed expenses:
Garage/warehouse rent	700,000	55,000	350,000	1,105,000
Supervision	50,000	70,000	150,000	270,000
Equipment depreciation	250,000	75,000	100,000	425,000
Segment margin	$1,000,000	$ 600,000	$ (500,000)	$1,100,000

Relevant fixed costs associated with this line include 60% of Boat Maintenance’s garage/warehouse rent and 50% of Boat Maintenance’s supervision salaries. In addition, assume that dropping the Boat Maintenance service line would reduce sales of the Winter Storage line by 20% and sales of the Boat Fuel & Concessions line by 10%. All other information remains the same.

Required:

1. If the Boat Maintenance service line is dropped, what is the contribution margin for the Boat Fuel & Concessions line? For the Winter Storage line?

Contribution Margin
Winter storage line	$fill in the blank 1
Boat fuel & concessions line	$fill in the blank 2

2. Which alternative (keep or drop the Boat Maintenance line) is now more cost effective and by how much?

Complete the keep or drop analysis to decide between the alternatives.

	Keep	Drop	Differential Amount
Contribution margin	$fill in the blank 3	$fill in the blank 4	$fill in the blank 5
Less: Garage/warehouse rent	fill in the blank 6	fill in the blank 7	fill in the blank 8
Supervision	fill in the blank 9	fill in the blank 10	fill in the blank 11
Total relevant benefit (loss)	$fill in the blank 12	$fill in the blank 13	$fill in the blank 14

The company is better off by $fill in the blank 15 if it the Boat Maintenance line.

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