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ID: 2586619 • Letter: S
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ssignmentMain.do?invoker assignments&itakeAssignmentSessionLocator-assignment-take8inprogress; false Video Calculator Strip Plank Parquet Total Sales revenue Less: Variable expenses Contribution margin Less direct fixed expenses: $400,000 $200,000 120,000 $175,000 80,000 300,000 $900,000 250,000 $50,000 $305,000 595,000 Machine rent (15,000) (35,000) 120,000 (20,000) (10,000) (10,000) 40,000 (50,000) (20,000) ( (25,000) (75,000) (45,000) (70,000) $115,000 Segment margin s (45,000) hickory's management is deciding whether to keep or drop the parquet product line. Hickory's parquet nooring product line has contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant. Refevant fixed costs associated with this line include $30,000 in machine rent and $4,700 in supervision salaries. Required 1. List the alternatives being considered with respect to the parquet flooring line. Drop the parquet flooring line or keep it w 2. Which alternative is more cost effective and by how much Keep by $ 10,000 X 8 5Explanation / Answer
Req 1: The Alternatives which the company have is as follows: Alternative 1: Company may drop the Product ParQuet Alternative 2: Company may keep the Product Parquet Req 2: Net operating income from Product Parquet Sales revenue 300,000 Less: Variable cost 250,000 Contribution 50,000 Less: Relevant Fixed cost Machine rent 30,000 Supervision 4,700 Net Operating Income 15300 Hence, the company should KEEP the Product as it increase the net income by $ 15,300 Note: Other fixed cost like remaining machine rent, supervision and Depreciation expense is irrelevant (i.e. it will be incurred even when the production for product is stopped). Therefore, incurred for both the alterntaive.
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