Melanie Sanders and Joyce O’Dell were department heads at Hobgood’s Toy and Hobby Store. They had been friends for a long time. Mr. Hobgood, the owner of the store, let the department heads make all decisions relating to the store’s operations. During the summer the hobby department usually had a higher gross profit, but during the holidays the toy department usually caught up. This year the toy department wasn’t doing well at all, mainly because a new discount toy store had opened less than a mile away. In early December, Melanie, the toy department manager, asked Joyce if she would mind charging all the remaining year’s advertising and shipping expenses to the hobby department. Melanie went on to explain that she was afraid Mr. Hobgood would get upset if he found out the toy department wasn’t doing well during the last quarter. She said she had a plan for next year to earn more revenue but was vague on what it involved. Joyce knew the hobby department’s year-to-date earnings were above average but she felt uncomfortable with what Melanie had asked her to do.

1. If Joyce decides to let Melanie charge all advertising and shipping expenses to the hobby department in December, what impact will it have on the financial statements?

2. Write a short paragraph stating both the short- and long-run implications of Melanie’s idea.

3. In groups of three or four, make a list of some suggestions to help Hobgood’s Toy and Hobby Store earn more revenue.