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	$	5,100,000
Costs
AdvertisingCity Division		183,000
Cost of goods sold		2,950,000
Divisional administrative salaries		298,000
Selling costs (sales commissions)		588,000
Rent		743,000
Share of corporate administration		483,000
Total costs	$	5,245,000
Net loss before income tax benefit	$	(145,000	)
Tax benefit at 40% rate		58,000
Net loss	$	(87,000	)

Required:

1. Using the worksheet below, determine which revenues and costs are probably differential for the decision to discontinue City Division's operations.
2. What will be the effect on Bettys profits if the division is eliminated?

Using the worksheet below, determine which 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
Costs
Advertising - City division
Cost of goods sold
Divisional administrative salaries
Selling costs (sales commissions)
Rent
Share of corporate administration
Total costs

• Required A

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

increase or decrease

Betty's profits will

by

Betty's profits will

by

Betty's profits will

by