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8.42 Department Allocations, Decision Making 101,102 LO3, 104 In 2016, Jaclyn's Bookstore devoted 400 square metres to the display and sale of paperback books, 100

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8.42 Department Allocations, Decision Making 101,102 LO3, 104 In 2016, Jaclyn's Bookstore devoted 400 square metres to the display and sale of paperback books, 100 LOS, LOG. square metres to children's books, and 50 square metres to rare books. The store is 600 square metres, and LO7 50 square metres were unused. The cost to maintain the store was $68,750, which was allocated among the three departments based on 550 square metres of occupied space. In 2017, management put a specialty coffee shop in the previously unused space. However, the allocation was not updated for this change. In 2017, the four departments' contribution margins before the allocation of building costs were $48,000 Paperback Books Children's Books Rare Books Coffee 34,000 13,000 5,000 During 2018, the four department managers all requested that they be allowed to expand their floor space. Each argued that the floor space of one of the other departments should be reduced so that their own department could be expanded. REQUIRED A. Determine earnings after the building costs have been allocated for 2017 for each department (remember that the firm allocated costs to only three departments). B. After seeing the results, the managers of the paperback books, children's books, and rare books point out that the coffee shop was not contributing toward covering the building costs. Determine the earnings after the building costs have been allocated for 2017 using all four departments, C. Suppose the managers mistakenly used the earnings after building costs were allocated to determine the contribution per unit of constrained resource (per square metre) for each department. Which department would be allowed to expand, and which one should be reduced or dropped? D. Suppose that managers properly calculated the contribution margin per unit of constrained resource (per square metre) for Part C by ignoring allocated costs. Which department would be allowed to expand, and which one would be reduced? E. Explain why the method in Part Dis better for making this decision. What are the qualitative factors related to this decision? F. Assume instead that during 2018, a small 200 square metre adjacent shop becomes available. The cost to open the adjoining wall to connect the two spaces is estimated to be $8,000. Based on the information that you have, would you recommend that Jaclyn's bookstore expand into this space? Which departments should expand? Justify your recommendation

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