Textbook Problem

Use the following information for Brief Exercises 8-29 and 8-30:

Shown below is a segmented income statement for Mullett Marina’s three main boating service lines:

8-29 Structuring a Keep-or-Drop Product-Line Problem

Refer to the information for Mullett Marina above. Mullett’s management is deciding whether to keep or drop the Boat Maintenance service line. Mullett’s Boat Maintenance service line has a contribution margin of $100,000 (sales of $5,000,000 less total variable costs of $4,900,000). All variable costs are relevant. Relevant fixed costs associated with this line include 60% of Boat Maintenance’s garage/warehouse rent and 50% of Boat Maintenance’s supervision salaries.

Required:

1. 1. List the alternatives being considered with respect to the Boat Maintenance service line.
2. 2. List the relevant benefits and costs for each alternative.
3. 3. Which alternative is more cost effective and by how much?