Betty’s Fashions operates retail stores in both downtown and suburban locations. The company has two responsibility centers: the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations. Betty’s CEO is concerned about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent City Division income statement follows. The CEO has asked for your advice on shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.

BETTY’S FASHIONS, CITY DIVISION

Divisional Income Statement

For the Year Ending January 31

Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,300,000

Costs

Advertising—City Division . . . . . . . . . . . . . . . . . 175,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . 2,150,000

Divisional administrative salaries . . . . . . . . . . . . 290,000

Selling costs (sales commissions) . . . . . . . . . . . 580,000

Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 735,000

Share of corporate administration . . . . . . . . . . . . 475,000

Total costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,405,000

Net loss before income tax benefit . . . . . . . . . . . $ (105,000)

Tax benefit at 40% rate . . . . . . . . . . . . . . . . . . . . 42,000

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (63,000

Required

What revenues and costs are probably differential for the decision to discontinue City Division’s operations? What will be the effect on Betty’s profits if the division is eliminated?