Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows.

Lessing Toy and HobbyNorthern DivisionFor the Year Ending January 31($000)Sales revenue$ 12,040CostsCost of goods sold$ 6,020Advertising490Administrative salaries810Sales commissions1,624Rent and occupancy expense2,058Allocated corporate support1,330Total costs$ 12,332Net loss before tax benefit$ (292)Tax benefit at 25%(73)Net loss$ (219)

The CEO has asked for your thoughts on the decision to close the Northern Division stores. If the Northern Division is eliminated and the stores closed, neither total corporate support costs nor operations or costs of the Southern Division stores are expected to change.

Required:

1. Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores.
2. What will be the effect on LTHs income if the Northern Division stores are closed?

Complete this question by entering your answers in the tabs below.

• Required A
• Required B

Using the worksheet below,determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores.

Note: Enter you answer in whole dollars, not in thousands e.g., 10,000 should be entered as 10,000,000.

Lessing Toy and HobbyNorthern Division Income StatementDifferential Revenues and CostsFor the Year Ending January 31Sales revenueDifferentialCostsCost of goods soldDifferentialAdvertisingDifferentialAdministrative salariesDifferentialSales commissionsDifferentialRent and occupancy expenseDifferentialAllocated corporate support0Not differentialTotal differential costs$0Net differential gain before income taxTax expense at 25% rateDifferentialNet differential gain from division

Complete this question by entering your answers in the tabs below.

• Required A
• Required B

What will be the effect on LTHs income if the Northern Division stores are closed?

LTHs profits willdecreaseby

Complete this question by entering your answers in the tabs below. Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. Note: Enter you answer in whole dollars, not in thousands e.g., 10,000 should be entered as 10,000,000. a. Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. b. What will be the effect on LTH's income if the Northern Division stores are closed? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. What will be the effect on LTH's income if the Northern Division stores are closed