Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger

Exercise 14

Structuring a Keep-or-Drop Product Line Problem with Complementary Effects
Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines:
Refer to the information for Hickory Company on the previous page. Relevant fixed costs associated with this line include 80% of parquet's machine rent and all of parquet's supervision salaries. In addition, assume that dropping the parquet product line would reduce sales of the strip line by 10% and sales of the plank line by 5%. All other information remains the same.
Required:
1. If the parquet product line is dropped, what is the contribution margin for the strip line For the plank line
2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much