QUESTION 1 Rayniday DIY Shop sells Plantation Tools, Carpentry Tools, and Wallpaper in one store location in suburban San Francisco. Although the company has been very profitable over the years. management is currently seeing a significant decline in Wallpaper sales and revenue. Most of this decline is due to the increasing number of competing companies in the Wallpaper field advertising through the internet. More and more Wallpaper companies are advertising through magazines providing customers with heavily discounted prices, free shipping and toll-free phone numbers. The following is information related to financial data for the three Rayniday DIY Shop business segments during the last quarter: Plantation tools handyman tools Wallpapers wood Sales Variable costs Fixed costs $ 380,000 $460,000 $140,000 $ 228,000 $322,000 $112,000 56,000 75,000 45,000 Total costs $ 284,000 $397,000 $157,000 Operating income (loss) $ 96,000 $63,000 $ (17,000) Rayniday is considering whether to close its Wallpaper operations booth due to the changing market and accompanying losses. If Wallpaper is closed, the following changes are expected: . The vacated space will be renovated at a cost of $12,400 and will be devoted to the expansion of the Carpenter's Tools segment with a target audience of high-end consumers. Sales in the Carpentry Tools line are expected to increase by $120,000, and the segment's overall contribution margin ratio will increase by five percent. . . Closing the Wallpaper segment will cut fixed costs by up to 40 percent. The remaining fixed costs will continue to be incurred. Customers who buy wallpaper often buy gardening tools. Therefore, sales of plantation equipment are estimated to decrease by 20 percent with the closing of the Wallpaper segment. The company will increase advertising spending by $25,000 to promote the expansion of its carpentry tools segment for high-end consumers. Asked: 1. Should Rayniday shut down its Wallpaper operation? Show calculations to support your answer. 2. Assume that there is Rayniday Wallpaper in stock at the time of closing of $23,700. How would you treat this additional information in making a decision? 3. What advantages might Internet and magazine-based companies have over Rayniday, so that these companies can offer prices that are significantly below what Rayniday can offer? 4. Would the situation change if the following occurred: Sales for the Plantation Tools. Carpentry Tools, and Wallpaper segments were $300,000, $450,000, and $90,000, respectively. Show your calculations.