Question 4: Decision Making [23 marks] Cool Kombinations (CK) sells paint and paint supplies, carpet and wallpaper at a single-store located in a small town, Otaki. Although the company has been very profitable over the years, management has noticed a significant decline in wallpaper sales and profits. Much of this decline is attributable to the customers increasingly purchasing products on the Internet and from companies that advertise deeply discounted prices in magazines and offer customers free shipping and toll-free telephone numbers. Recent data on CK's revenues and costs are presented below: Paint and supplies Carpeting Wallpaper Sales $380,000 $460,000 $140,000 Variable costs 228,000 322,000 112,000 Fixed costs 56,000 75,000 45,000 Total costs ($284,000) ($397,000) ($157,000) Operating profit (loss) $96,000 $63,000 $(17,000) Management is considering dropping wallpaper because of the changing market and accompanying loss. If this product line is dropped, the following changes are expected to occur: Part B - Question 4 continued over page 1901/110.229 Assignment 2 Booklet Distance/Internal Manawatu/Auckland/Distance 16 Part B - Question 4 continuedThe vacated space will be remodelled at a cost of $12,400 and will be devoted to an expanded line of high-end carpet. Sales of carpet are expected to increase by $120,000, and the carpet line's overall contribution margin ratio will rise by 5 %.The company can reduce wallpaper fixed costs by 40%. 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%.The firm will increase advertising expenditure by $25,000 to promote the expanded carpet line. Required: Show ALL your workings. I. From a financial perspective, should CK close its wallpaper operation? (15 marks) II. Identify four qualitative factors that would affect the decision to keep or drop the Wallpaper? Your answer should include at least one social factor.