Question

In: Accounting

Strip Plank Parquet Total Sales revenue $400,000 $200,000 $300,000 $900,000 Less: Variable expenses 225,000 120,000 250,000...

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) (30,000) (55,000)
   Supervision (15,000) (10,000) (5,000) (30,000)
   Depreciation (35,000) (10,000) (25,000) (70,000)
Segment margin $120,000 $ 40,000 $ (10,000) $150,000

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. In addition, assume that dropping the parquet product line would reduce sales of the strip line by 27% and sales of the plank line by 20%. All other information remains the same.

1. If the parquet product line is dropped, what is the contribution margin for the strip line?

2. Which alternative (keep or drop the parquet product line) is now more cost effective and by how much?

Keep by: $

Solutions

Expert Solution

1)
Strip line (175000*73%) $    1,27,750.00
Plank line (80000*80%) $       64,000.00
2)
Segment margin if keep the parquet line (given) = $150000 $         1,50,000.00
Segment margin if drop the parquet line:
Segment marging from strip line (120000-(175000-127750)) $             72,750.00
Segment marging from Plank line (40000-(80000-64000)) $             24,000.00
Unavoidable fixed costs (25000+(30000*20%)) $       31,000.00
Net Segment margin if drop the parquet line (72750+24000-31000) $       65,750.00
It is suggested to keep the parquet line because it is more cost effective by $84250 =(150000-65750)

Related Solutions

1.A firm estimates sales of $250,000 in December, $275,000 in January; $225,000 in February, $300,000 in...
1.A firm estimates sales of $250,000 in December, $275,000 in January; $225,000 in February, $300,000 in March, $350,000 in April; $280,000 in May; and $300,000 in June. November sales were $225,000. The firm typically collects 20% of its sales in cash; 50% are accounts receivable paid the month after the sale; and 30% are accounts receivable paid two months after the sale. The firm’s cost of goods sold (raw materials) amounts to 70% of its sales. The raw materials are...
Food sales $                 950,000 Other revenue 5% of total revenue Expenses: Fixed Variable* Labor $         
Food sales $                 950,000 Other revenue 5% of total revenue Expenses: Fixed Variable* Labor $                 100,000 10% Cost of sales $                            - 35% Supplies $                            - 5% Energy $                   12,000 3% Marketing $                     5,000 4% Maintenance $                   12,000 2% Property taxes $                     4,000 Depreciation $                   15,000 Property insurance $                     5,000 Rent $                     3,500 * As a percentage of food sales. The Robinson Diner, managed by Ina Fay, needs your assistance in preparing its 20X8 operating budget. Since the diner is a sole proprietorship, it will not pay income taxes. Information is...
1). Contribution Margin is: a). Sales - Total Variable expenses b). Sales - Total variable expenses...
1). Contribution Margin is: a). Sales - Total Variable expenses b). Sales - Total variable expenses - Total fixed expenses c). Sales revenue per unit x Sales quantity d). Variable expense per unit x Sales quantity 2). When preparing segmented income statements fixed expense are separated into the following categories: a). Traceable and common b).Fixed and Variable c).Direct and indirect d).Product and period 3).A Co. reported: Sales $125000; Contribution margin $62000; Total fixed expenses $42000; Common fixed expenses $15000. How...
Revenue $ 1,500,000 Less: Variable expenses 975,000 Contribution margin $ 525,000 Less: Fixed expenses 420,000 Net...
Revenue $ 1,500,000 Less: Variable expenses 975,000 Contribution margin $ 525,000 Less: Fixed expenses 420,000 Net income $ 105,000 4.Use the operating leverage factor to calculate the increase in net income resulting from a 25 percent increase in sales revenue.
Data for Tropical Enterprises? follows: 2019 2018 2017 Total Current Assets $400,000 $300,000 $250,000 Total Current...
Data for Tropical Enterprises? follows: 2019 2018 2017 Total Current Assets $400,000 $300,000 $250,000 Total Current Liabilities 190,000 150,000 125,000 Compute the dollar amount of change and the percentage of change in Tropical ?Enterprises's working capital each year during 2019 and 2018. What do the calculated changes? indicate? Begin by selecting the formula to compute the working? capital, the dollar amount of change and the percentage of change in Tropical ?Enterprises' working capital. Working capital =__________________________________ Dollar amount of change...
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses...
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000. Required: 1. What is the company’s contribution margin (CM) ratio? 2. What is the estimated change in the company’s net operating income if it can increase sales volume by 250 units and total sales by $1,000?
KR Corporation's break-even point in sales is Rs. 900,000, and its variable expenses are 75% of sales
KR Corporation's break-even point in sales is Rs. 900,000, and its variable expenses are 75% of sales. If the company lost Rs. 32,000 last year, sales must have amounted to
Village industries expects total sales for Jan, Feb, and Mar to be $300,000, $350,000, and $400,000...
Village industries expects total sales for Jan, Feb, and Mar to be $300,000, $350,000, and $400,000 respectively. All sales are on credit. It expects to collect 60% of the sales in the month of sale and 35% in the following month. a) Compute the cash collections from customers for Feb and Mar. February: $   March: $ b) Compute the accounts receivable for : March: $   April: $
Total sales $120,000 Food & Beverage $24,000 Total expenses $84,000 Cost of Food and Beverage based...
Total sales $120,000 Food & Beverage $24,000 Total expenses $84,000 Cost of Food and Beverage based on total sale (total sale * percentage = cost of food and beverage) What percentage of Cost of Food and Beverage is needed to increase the Battle of the Chefs event's net profit by 10%? (Hint: Create a formula to calculate the 10% increase, then use Goal Seek.)
Revenues $300,000 Less operating expenses: Rent $169,000 Insurance 15,000 Depreciation 46,000 Maintenance 20,000 250,000 Net operating...
Revenues $300,000 Less operating expenses: Rent $169,000 Insurance 15,000 Depreciation 46,000 Maintenance 20,000 250,000 Net operating income $   50,000 1. A company has estimated the annual revenues and expenses for a project it is considering (listed above) that will cost a total of $500,000, have a ten-year useful life, and has a salvage value of $40,000. The company requires a payback period of 5 years or less. Using the information above, what is the expected annual cash flow for this...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT