Richmond’s is a retail store with eight departments, including a garden department that has been operating at a loss. The following condensed income statement gives the een latest year’s operating results:

Required

a. Calculate the gross profit percentage for the garden department and for the other departments as a group.

b. Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for \($18,000\) per year, and the common expenses of the firm would be reduced by \($4,500.\) What effect would this action have on Richmond’s net income? (Ignore income tax in your calculations.)

c. It is estimated that if an additional \($6,000\) were spent on advertising, prices in the garden center could be raised an average of 5% without a change in physical volume of products sold. What effect would this have on the operating results of the garden department? (Again, ignore income tax in your calculations.)

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Garden Department All Other Departments Sales.. Cost of sales.. Gross profit.. Direct expenses. Common expenses Total expenses.. Net income (Loss).. $336,000 $2,400,000 201,600 1,560,000 $134,400 $ 840,000 $108,000 $ 273,000 48,000 312,000 $156,000 $ (21,600) $ 585,000 $ 255,000