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 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. Select the alternatives being considered with respect to the Boat Maintenance service line. Keep or drop the boat maintenance line 2. List the relevant benefits and costs for each alternative. Note: Enter all amounts as positive numbers except loss, if applicable. 3. Which alternative is more cost effective?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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 |
250,000 | 75,000 | 100,000 | 425,000 | |||
| Segment margin | $1,000,000 | $ 600,000 | $ (500,000) | $1,100,000 |
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. Select the alternatives being considered with respect to the Boat Maintenance service line.
Keep or drop the boat maintenance line
2. List the relevant benefits and costs for each alternative.
Note: Enter all amounts as positive numbers except loss, if applicable.
3. Which alternative is more cost effective?
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