Shown below is a segmented income statement for Hickory Company\'s three wooden

Question

Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines: 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) (50,000) (75,000) Supervision (15,000) (10,000) (20,000) (45,000) Depreciation (35,000) (10,000) (25,000) (70,000) Segment margin $120,000 $ 40,000 $ (45,000) $115,000 Hickory's management is deciding whether to keep or drop the parquet product line. Hickory'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 80% of parquet's machine rent and all of parquet's supervision salaries. Required: 1. List the alternatives being considered with respect to the parquet flooring line.

Keep the parquet flooring line or drop it--DROP IT

By how much? $

I NEED TO KNOW HOW MUCH WOULD BE SAVED BY DROPPING THE PARQUET FLOOR.

Explanation / Answer

Loss in contribution margin -50000 Machine rent 40000 =50000*80% Supervision 20000 Change in operating income 10000 Operating income will increase by $10000

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