1.

Bettys 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. Bettys 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 Divisions 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	$	5,900,000
Costs
AdvertisingCity Division		191,000
Cost of goods sold		3,750,000
Divisional administrative salaries		306,000
Selling costs (sales commissions)		596,000
Rent		751,000
Share of corporate administration		491,000
Total costs	$	6,085,000
Net loss before income tax benefit	$	-185,000
Tax benefit at 40% rate		74,000
Net loss	$	-111,000

Required:

What revenues and costs are probably differential for the decision to discontinue City division's operations?

BETTY'S FASHIONS, CITY DIVISION
Divisional Income Statement
Differential Revenues and Costs
For the Year Ending January 31
Sales revenue	$5,900,000	Differential
Costs
Advertising - City division	191,000	Differential
Cost of goods sold	3,750,000	Differential
Divisional administrative salaries	306,000	Differential
Selling costs (sales commissions)	596,000	Differential
Rent	751,000	Differential
Share of corporate administration	0	Not differential
Total costs	$5,594,000
Net differential gain before income tax expense	?
Tax expense at 40% rate	?	Differential
Net differential gain from store	?

What will be the effect on Bettys profits if the division is eliminated?

Betty's profits will decrease by ?