Photo Express operates a small camera store in Ft. Lauderdale, Florida. The store has two departments, camera sales and photo finishing. Rent, utilities, and other operating expenses are allocated to the departments based on the square footage occupied by the department. Currently, the camera sales department occupies 3,000 square feet and the photo finishing department occupies 2,000 square feet.

Photo Express president, Billy Clifford, is thinking about buying a computer system to produce poster prints. The poster printing system would occupy 200 square feet of the store’s floor space.

Clifford believes the company should not buy the poster system because it will show a loss every month. Because he is not sure, he has contacted a small consulting group to seek advice. Assume you are part of the consulting group.
Required:

a. Would the poster system show a loss every month as Clifford suggests? Prepare a schedule to substantiate your answer.

b. Would the company’s overall monthly profits increase or decrease as a result of buying the poster system? Prepare a schedule to substantiate your answer.

c. Prepare a relevant cost schedule showing the advantage or disadvantage of buying the poster system.

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Budgeted monthly information for the store: Store rent Salaries and wages Utilities Other operating expenses Sales Cost of goods sold Information about the poster printing system: Cost of the poster system Estimated useful life Estimated residual value Floor space required Monthly cost of electricity used by poster system Budgeted monthly amounts: Poster sales revenue Poster supplies Wages for poster operation Store rent Utilities Other operating expenses $5,000 10,500 750 3,000 125,000 95,000 $25,700 5 years $500 200 square feet $50 $1,200 200 250 200 32 120