Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines: Line Item Description Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000 595,000 Contribution margin $175,000 $ 80,000 $ 50,000 $305,000 Less direct fixed expenses:            Machine rent 5,000 20,000 42,000 67,000    Supervision 15,000 10,000 20,000 45,000    Depreciation 35,000 10,000 25,000 70,000 Segment margin $120,000 $ 40,000 $ (37,000) $123,000 Orzo's management is deciding whether to keep or drop the parquet product line. Orzo'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 $42,000 in machine rent and $5,000 in supervision salaries. 1) Which alternative is more cost effective and by how much?____

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Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines:

Line Item Description Strip Plank Parquet Total
Sales revenue $400,000 $200,000 $300,000 $900,000
Less: Variable expenses 225,000 120,000 250,000 595,000
Contribution margin $175,000 $ 80,000 $ 50,000 $305,000
Less direct fixed expenses:        
   Machine rent 5,000 20,000 42,000 67,000
   Supervision 15,000 10,000 20,000 45,000
   Depreciation 35,000 10,000 25,000 70,000
Segment margin $120,000 $ 40,000 $ (37,000) $123,000

Orzo's management is deciding whether to keep or drop the parquet product line. Orzo'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 $42,000 in machine rent and $5,000 in supervision salaries.

1) Which alternative is more cost effective and by how much?____

 

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