Departmental Contribution to Common Expenses Certain operating information is shown below

for Palmer Department Store:

Department A Department B

All Other

Departments

Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $600,000 $900,000 $2,100,000

Traceable expenses . . . . . . . . . . . . . . . . . . . . . . . 105,000 165,000 600,000

Common expenses. . . . . . . . . . . . . . . . . . . . . . . . 90,000 120,000 300,000

Gross profit percentage . . . . . . . . . . . . . . . . . . . . 30% 40% 50%

The managers are disappointed with the operating results of department A. They do not believe

that competition will permit raising prices; however, they believe that spending $21,000 more for

promoting this departments products will increase the physical volume of products sold by 20%.

An alternative is to discontinue department A and use the space to expand department B. It is be-

lieved that department Bs physical volume of products sold can thus be increased 37.5%. Special sales

personnel are needed, however, and department Bs traceable expenses would increase by $90,000.

Neither alternative would appreciably affect the total common departmental expense.

Required

a. Calculate the contribution now being made to common expenses by department A, by depart-

ment B, and by the combination of other departments.

b. Which of the two alternatives should management choose: increase promotional outlays for de-

partment A or discontinue department A and expand department B? Support your answer with

calculations.