Conrad Company sells electronics to a single-store location in Vancouver. Although the company has been very profitable over the years, management has been a significant decline in audio sales and earnings. Recent figures follow Audio Home Theatre 5700 3420 Computer 2300 4830 Sales Variable costs Fixed costs Total Costs Operating income (loss) 840 1125 2100 1680 675 2355 (255) 4260 1440 5955 945 Management is studying whether to drop Audio Department because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur. 1. Audio Department - If this department is dropped, Conrad can only cut Audio's fixed costs by $290. All staff in this line will be laid off. Conrad will lose its exclusive rights to sell 12 brand name audio product lines in Canada 2. Computer Department - The vacated space will be remodeled and will be devoted to an expanded line of Computer Sales of computer are expected to increase by $1,200, and the Computer line's overall variable cost will drop by $100 due to more discounts offered by suppliers for larger orders. Due to more computers will be displayed in the store, an increase of $84 electricity charges per month is expected 3. Home Theatre Department - Customers who purchased Audio often bought Home Theatre equipment Sales of Home Theatre equipment are expected to fall by 20% 4. The firm will increase monthly advertising expenditures by $50 and $66 to promote the Computer and Home Theatre Department respectively. The change in use of the retail building will trigger an increase in monthly insurance premium by $30 for each of the Computer and Home Theatre Department Required: Should Conrad close its Audio Department? Show computation to support your answer. Home Theatre Computer Audio