Question 2 (35) Conrad Company sells electronics to a single-store location in Vancouver. Although the company has been very profitable over the years, management has been a significant decline in audio sales and earnings. Recent figures follow. (Monthly) Computer Home Theatre Audio $ 200,000 $ 240,000 $ 80,000 Sales Variable costs 120,000 168,000 64,000 Fixed costs 32,000 30,500 14,500 Total costs 142.000 198,500 78,500 Operating income (loss) 48.000 31.500 (8,500) Management is studying whether to drop Audio Department because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur: 1. Computer Department - The vacated space will be remodeled and will be devoted to an expanded line of Computer. Sales of computer are expected to increase by $68,000, and the Computer line's overall variable cost will drop by $3,000 due to more discounts offered by suppliers for larger orders. Due to more computers will be displayed in the store, an increase of $1,100 electricity charges per month is expected. 2. Audio Department - If this department is dropped, Conrad can only cut Audio's fixed costs by $10,100. All staff in this line will be laid off. Conrad will lose its exclusive rights to sell 12 brand name audio product lines in Canada. 3. Home Theatre Department - Customers who purchased Audio products often bought Home Theatre equipment. Sales of Home Theatre equipment are expected to fall by 25%. 4. The firm will increase monthly advertising expenditures by $6,100 and $3,200 to promote the Computer and Home Theatre Department respectively. The change in use of the retail building will trigger an increase in monthly insurance premium by $220 for each of the Computer and Home Theatre department. Question 2 (35) Conrad Company sells electronics to a single-store location in Vancouver. Although the company has been very profitable over the years, management has been a significant decline in audio sales and earnings. Recent figures follow. (Monthly) Computer Home Theatre Audio $ 200,000 $ 240,000 $ 80,000 Sales Variable costs 120,000 168,000 64,000 Fixed costs 32,000 30,500 14,500 Total costs 142.000 198,500 78,500 Operating income (loss) 48.000 31.500 (8,500) Management is studying whether to drop Audio Department because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur: 1. Computer Department - The vacated space will be remodeled and will be devoted to an expanded line of Computer. Sales of computer are expected to increase by $68,000, and the Computer line's overall variable cost will drop by $3,000 due to more discounts offered by suppliers for larger orders. Due to more computers will be displayed in the store, an increase of $1,100 electricity charges per month is expected. 2. Audio Department - If this department is dropped, Conrad can only cut Audio's fixed costs by $10,100. All staff in this line will be laid off. Conrad will lose its exclusive rights to sell 12 brand name audio product lines in Canada. 3. Home Theatre Department - Customers who purchased Audio products often bought Home Theatre equipment. Sales of Home Theatre equipment are expected to fall by 25%. 4. The firm will increase monthly advertising expenditures by $6,100 and $3,200 to promote the Computer and Home Theatre Department respectively. The change in use of the retail building will trigger an increase in monthly insurance premium by $220 for each of the Computer and Home Theatre department
