alaries expense represents salaries working directly on the product. Employees would be moved to other departments if the Housewares department is dropped

Advertising expense represents ads specific to products that are avoidable if the Housewares department is dropped.

Utilities expense represents utilities costs for the entire company. The amount charged is allocated on the basis of space occupied within the location. All space will remain occupied if the Housewares department is dropped and the utilities costs will not decrease.

Depreciation expense represents depreciation on fixtures used to display the various product lines. The fixtures are nearly new and custom built. They have no resale value if the Housewares department is dropped.

Rent expense represents rent on the building. It is allocated based on sales dollars. The entire building will remain occupied if the Housewares department is dropped

Insurance expense is for insurance carried on inventories within each product line. If the Housewares department is dropped, inventory of the other types will increase. As drugs and cosmetics are more expensive than housewares, insurance costs are expected to increase by 10%.

General administrative expense represents the costs of accounting and general management. These costs are allocated to product lines on the basis of sales dollars. Costs will not change if the Housewares department is dropped.

Required:

Determine the effect on the drug stores profits if the Housewares department is dropped.

The chart below shows a company's results of operations at a retail drug store with a single location. The company is considering whether to discontinue the housewares line Product Line Drugs Cosmetics Housewares Total Sales $125,000 $75,000 $240,000 $40,000 30,000 50,000 25,000 105,000 $135,000 $ 75,000 $50,000 $10,000 Variable costs Contribution margin Fred costs: Salaries 29,500 12,500 8,000 50.000 Advertising 1,000 7,500 6,500 1,000 15,000 2,000 Utilities 500 500 1,000 Depreciation futures 2,000 2,000 5,000 Rent 10,000 6,000 4,000 20,000 2,000 3,000 Insurance General Administrative 500 9,000 500 6,000 15.000 30,000 Totalfixed costs 59,000 38,000 28,000 125,000 $16,000 $12,000 Net Operating Income Loss $18,000) $10,000