Analyze Operational Changes 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 latest year's operating results: Sales Cost of sales Gross profit Direct expenses Common expenses Total expenses Net income (Loss) Garden Department All Other Departments $504,000 $3,600,000 302,400 2.340,000 201,600 1,260,000 162,000 409,500 72,000 468,000 234,000 877,500 $32,400) $382,500 a. Calculate the gross profit percentage for the garden department and for the other departments as a group. Garden department 40 16 All other departments 30 X b. Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for $27,000 per year, and the common expenses of the firm would be reduced by $6,700. What effect would this action have on Richmond's net income? (Ignore income tax in your calculations.) Richmond's net income would decrease by $ 5,900 C. It is estimated that if an additional 59,000 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.) Use a negative sign to indicate a net loss answer, otherwise do not use negative signs with your answers. Garden Department Income Statement Sales 529.200 Cost of sales 3D2,400 Gross profit 226,800 Direct expenses 162,000 x Common expenses 81,000 X Totaleynenses 243.000 $ Cost osales Gross profit Direct expenses Common expenses Total expenses Net income Loss) BUZAU 201,600 162,000 72,000 234,000 $22.400 2,340,000 1,750,000 409,500 468,000 877.500 $3R2,500 $ a. Calculate the grass profit percentage for the garden department and for the other departments as a group. Garden department 40 % All other departments 30 b. Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for $27,000 per year, and the common expenses of the firm would be reduced by $6,700. What effect would this action have on Richmond's net income? (Ignore income tax in your calculations.) Richmond's net income would decrease by S 5,900 c. It is estimated that if an additional $9,000 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.) Use a negative sign to indicate a net loss answer; otherwise do not use negative signs with your answers. Garden Department Income Statement Sales 529,200 Cost of sales 302.400 Gross profit 226,800 Direct expenses 162,000 X Common expenses 81.000 X Total expenses 243.000 Net income (Loss) $ 16,200 X
