Furniture Showcase Company operates three departments at its Lansing location, a Commercial Furniture Department, a Residential Furniture Department, and an Assemble-Yourself Furniture Department for budget-conscious customers. The store's accountant has prepared an income statement by department for the most recent year, and for the third year in a row the Assemble-Yourself Furniture Department has shown a loss. If the company decides to eliminate the unprofitable department, 60% of the space occupied by the Assemble-Yourself Furniture Department will be used by the Residential Furniture Department and the remaining 40% will be used by the Commercial Furniture Department. The firm does not believe that eliminating the third department, while at the same time enlarging the remaining two departments, will change the sales of the Residential and Commercial Departments. The accountant has also provided the following information:

1. The president's salary of $72,000 per year has been allocated equally between the departments.

2. At present, there are three salespersons and a manager in the Assemble-Yourself Furniture Department. If the department is eliminated, the manager would be transferred to the Commercial Furniture Department and the three salespersons would be terminated. The manager's salary is $32,000 per year.

3. The utilities, rent, and insurance are allocated on the basis of square footage. The insurance would decrease $2,000 a year if the department is eliminated; the rent and utilities would not change.

4. Indirect advertising in the amount of $80,000 was allocated to the departments on the basis of sales. The direct advertising expenditures incurred by the Assemble-Yourself Furniture Department would be eliminated.

5. The equipment in the Assemble-Yourself Furniture Department would be transferred to the other departments, 70% to the Commercial Furniture Department and 30% to the Residential Furniture Department.

FURNITURE SHOWCASE COMPANY Income Statement For The Year Ended December 31, 2020 Commercial Residential Assemble- Total Furniture Furniture Yourself Furniture Sales $ 850,000 $ 510,000 $ 340,000 $ 1,700,000 Variable costs 340,000 229,000 119,000 688,500 Contribution Margin $ 510,000 $ 280,500 $ 221,000 $ 1,011,500 Fixed operating expenses: Salaries $ 160,750 $ 82,500 $ 89,750 $ 333,000 Utilities 15,400 18,100 14,500 48,000 Advertising 140,000 87,000 96,000 323,000 Rent on building 28,000 37,000 28,000 93,000 Depreciation on equipment 35,000 26,000 22,000 83,000 Insurance 8,100 12,150 6,750 27.000 Total operating expenses $ 387,250 $ 262,750 $ 257.000 $ 907.000 Net income (loss) $ 122,750 $ 17,750 S (36,000) $ 104,500