Cornerstones of Managerial Accounting 6th Edition by Maryanne Mowen,Don Hansen ,Dan Heitger

Exercise 38

Structuring a Keep-or-Drop Product Line Problem
Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines:

Refer to the information for Hickory Company above. 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.
2. List the relevant benefits and costs for each alternative.
3. Which alternative is more cost effective and by how much?