Joe runs a hardware store and has three departments: tools, plumbing and housewares. Lately, the housewares department has not been performing as well as it used to. Joe had his accountant prepare a segmented contribution margin statement for the store to analyze each department. The contribution margin statement is shown below.

Joe's Hardware

Segmented Contribution Margin Statement

For the Year Ending December 31, 2011

Tools

Plumbing

Housewares

Total

Revenue

$110,000

$95,000

$75,000

$280,000

Less: Variable Costs

71,500

66,500

56,250

194,250

Contribution Margin

38,500

28,500

18,750

85,750

Less: Fixed Costs

16,000

14,000

19,000

49,000

Segment Operating Income

$22,500

$14,500

($250)

$36,750

Joe estimates that 3% of the sales in the tools and plumbing department are from those that come to the store for housewares items. If the housewares department is closed down, both the tools and the plumbing department would lose those sales.

Perform an incremental analysis to determine if Joe should close down the housewares department.

What is the incremental effect of closing down the housewares department?

a.

Negative $250

b.

Positive $1,250

c.

Neagtive $1,760

d.

None of the above.

Should Joe close down the housewares department?

	a.	Yes
	b.	No
	c.	Do not have enough information.
	d.	None of the above