Question 24 (14 points) 1) Listen The manager of the Sports' Books line is concerned about the recent performance of her department. The most recent income statement in fact indicated a net loss of $8500 for the most recent quarter. In fact, the store manager has indicated a desire to close the sports book department VOLUMES BOOK STORE INCOME STATEMENT FOR THE QUARTER ENDED SEPTEMBER 30, 2020 TOTAL NOVELS TRAVEL SPORTS sales $480,000 $175,000 $195,000 $110,000 Cost of goods sold 193,400 70,000 77,600 45,800 Gross profit 286.600 $105,000 $117,400 $54,200 Operating expenses: Salaries 548,000 $18,000 $16,000 $15,000 Utilities 6,000 2,500 1,900 1,600 Direct advertising 19,900 8,400 6,500 5,000 General advertising 12,000 4,000 4,000 4,000 Rent on building 37,000 15,000 12,000 10,000 Employment taxes*+ 4,900 1,800 1,600 1,500 Amortization of equipment and fixtures 35,000 12,000 15,000 8,000 Insurance on fixtures, equipment, and inventories 5,200 1,800 2,200 1, 200 Property taxes on fixtures, equipment, and inventories 1,700 600 700 400 Service department expenses 81,000 24,000 31,000 26,000 Total operating expenses 5251,700 588,100 $90,900 $72,700 Net income (loss) $34 900 $16,900 $26,500 ($8,500) ** based directly on salaries paid in each department The following additional information is available: a) All departments are housed in the same building. The store leases the entire building at a fixed annual rental rate b) If sports' books are eliminated, the utilities bill will be reduced by $500 per quarter. c) One of the employees who works in sports' books, Alice Smith, has been with the company for many years. Ms. Smith will be transferred to another department if sports books are eliminated. Her salary is $2,500 per quarter. Other sports' book employees will be laid off. d) The fixtures and equipment used in the sports' books department will be transferred to the other departments. One fourth of the insurance and property taxes allocated to sports' books relates to the fixtures and equipment in the sports' books department. e) Volumes Book Store has three service departments - purchasing, warehouse and general office. One employee in purchasing and one employee in the warehouse could be discharged if sports' books is eliminated. The salaries and employment taxes of these two employees total $4,500 per quarter. REQUIRED: 1) Should the sports' books department be eliminated? 2) Assume that Volumes Book Store has an opportunity to sublease the space now being occupied by the sports' books department at a monthly rental rate of $20,000. Would you advise the store to eliminate the sports' books department and sublease the space