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Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines: Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Strip $400,000 225,000 $175,000 Supervision Depreciation Plank 5,000 15,000 35,000 $120,000 $200,000 120,000 $ 80,000 20,000 10,000 10,000 $ 40,000 34,000 20,000 25,000 Segment margin $ (29,000) 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 $34,000 in machine rent and $5,100 in supervision salaries. Parquet $300,000 $900,000 595,000 250,000 $ 50,000 $305,000 Required: 1. List the alternatives being considered with respect to the parquet flooring line. 3. Which alternative is more cost effective and by how much? by s Total 2. List the relevant benefits and costs for keeping the parquet flooring line. 59,000 45,000 70,000 $131,000

Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines: Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Strip $400,000 225,000 $175,000 Supervision Depreciation Plank 5,000 15,000 35,000 $120,000 $200,000 120,000 $ 80,000 20,000 10,000 10,000 $ 40,000 34,000 20,000 25,000 Segment margin $ (29,000) 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 $34,000 in machine rent and $5,100 in supervision salaries. Parquet $300,000 $900,000 595,000 250,000 $ 50,000 $305,000 Required: 1. List the alternatives being considered with respect to the parquet flooring line. 3. Which alternative is more cost effective and by how much? by s Total 2. List the relevant benefits and costs for keeping the parquet flooring line. 59,000 45,000 70,000 $131,000

FINANCIAL ACCOUNTING
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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Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines: Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation Strip $400,000 225,000 $175,000 5,000 15,000 35,000 Plank $120,000 $200,000 120,000 $ 80,000 20,000 10,000 10,000 $ 40,000 Parquet $300,000 250,000 $ 50,000 3. Which alternative is more cost effective and by how much? by $ 34,000 20,000 25,000 Required: 1. List the alternatives being considered with respect to the parquet flooring line. 2. List the relevant benefits and costs for keeping the parquet flooring line. Total Segment margin $ (29,000) 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 $34,000 in machine rent and $5,100 in supervision salaries. $900,000 595,000 $305,000 59,000 45,000 70,000 $131,000
Transcribed Image Text:Structuring a Keep-or-Drop Product Line Problem Shown below is a segmented income statement for Orzo Company's three laminated flooring product lines: Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: Machine rent Supervision Depreciation Strip $400,000 225,000 $175,000 5,000 15,000 35,000 Plank $120,000 $200,000 120,000 $ 80,000 20,000 10,000 10,000 $ 40,000 Parquet $300,000 250,000 $ 50,000 3. Which alternative is more cost effective and by how much? by $ 34,000 20,000 25,000 Required: 1. List the alternatives being considered with respect to the parquet flooring line. 2. List the relevant benefits and costs for keeping the parquet flooring line. Total Segment margin $ (29,000) 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 $34,000 in machine rent and $5,100 in supervision salaries. $900,000 595,000 $305,000 59,000 45,000 70,000 $131,000
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