Copper Gifts has three sales departments: wood crafts, clothing items, and paper goods. The store's condensed income statement for the year ended December 31, 2016, is shown below:

The proprietor asked the auditor if the Clothing Items and/or Paper Goods departments should be closed. In the opinion of both the owner and the auditor, if the Clothing Items department is closed, the total indirect expenses could possibly be reduced to $17,000. If only the Paper Goods department is closed, the indirect expenses could possibly to be reduced to a total of $16,000. In the opinion of the owner, if the Paper Goods department is closed, a loss of $7,000 in sales could be lost by the Wood Crafts department. This loss in sales would reduce the Wood Crafts Cost of Goods Sold by $3,000. She also thinks that closing the Paper Goods department would have no effect on sales of the Clothing Items department.

INSTRUCTIONS
1. Based on the preceding information, what would the estimated total profit or loss be if the Paper Goods department was closed?
2. What would the estimated total profit or loss be if the Clothing Items department were closed?
3. What advice would you give the proprietor?

Analyze:
What is the current contribution margin for each department?

Transcribed Image Text:

Copper Gifts Condensed Income Statement Year Ended December 31, 2016 Wood Clothing Items Sales Cost of Goods Sold Gross 2 0 00 0 8 00 0 6 000 0 500 0 0 Direct Expenses Indirect Expenses 1200 0 41 0 0 0 400 0 12000