Shown below is a segmented income statement for Hickory Company's three wooden flooring product lines:
Strip Plank Parquet Total
Sales Revenue $440,000 $200,000 $300,000 $900,000
Less: Variable Exps 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.
1. Which alternative is more cost effective? Drop the parquet flooring line.
2. By how much? $____?