managerial accounting: operating segment $-$ loss

Tipton OneStop Decorating sells paint and paint supplies. carpet. and wallpaper at a single store location in suburban Des Moines. Although the company has been profitable over the Fars. management has seen a significant decline in wallpaper sales and earnings. Much of this decline is attributable to the Internet and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and toll-free telephone numbers. Recent figures follow. Variable costs Fixed costs Total costs Operating income ( loss) paint and Supplies S3S0.ooo sns,ooo 56.000 S2S4.ooo Carpeting S460000 S322,ooo 75.000 S397.0(M) S63.ooo Wallpaper $140,000 S112,OOO 45.000 S157.cm 17.000) Tipton is Studying Whether to drop wallpaper because Of the Changing market and accompanying loss. If the line is dropped. the changes are expected to occur: The vacated space will be remodeled at a cost of S12.400 and will be devoted to an expanded line of high-end carpet. Sales of carpet are expected to increase by S 120,000, and the line's overall contribution margin ratio will rise by five percentage points. Tipton Can Cut fixed COStS by 40 percent. Remaining fixed COStS Will continue to be incurred. Customers who purchased Wallpaper often bought paint and paint supplies. Sales of paint and paint supplies are expected to fall by 20 percent. The firm will increase advertising expenditures by S25.om to promote the evanded carpet line. Required: I. Should Tipton close its wallpaper operation? Shff*' computations to pur ansuer. 2. Assume that Tipton's wallpaper inventory at the time of the closure decision amounted to S23,700. Hcnv would have treated this additional information in making the decision? 3. Nihat advantages might Internet- and magazine-based firms have Tipton that would allow these organizations to offer deeply discounted pricesprices far below what Tipton can offer?