QUESTION TWO Weve got to eliminate Department A, said Bob Cash, vice president of your company, Bogoso Super Mall Ghana Limited. Its a drag on the entire organization. If anyone needs proof, just look at the last quarters income statement. The statement to which Mr. Cash was referring to is shown below: BOGOSO SUPER MALL GHANA LIMITED INCOME STATEMENT FOR THE QUARTER ENDING JUNE 30, 2020 Total Dept A Dept B Dept C GH GH GH GH Sales 7,500,000 1,400,000 3,500,000 2,600,000 Less Variable expenses 4,518,000 780,000 2,178,000 1,560,000 Contribution margin 2,982,000 620,000 1,322,000 1,040,000 Less Fixed expenses: Direct advertising 487,500 130,000 200,000 157,500 General advertising (allocated on sales) 150,000 28,000 70,000 52,000 Salaries 680,000 180,000 290,000 210,000 Rent on building 382,500 95,000 157,500 130,000 (allocated on space) Utilities 154,500 40,000 68,000 46,500 Employers -SSNIT (allocated on salaries paid) 102,000 27,000 43,500 31,500 Depreciation of fixtures 200,000 54,000 81,500 64,500 Insurance on inventory & fixtures 18,500 6,000 7,000 5,500 General office expenses 300,000 100,000 100,000 100,000 Service dept. expenses 225,000 75,000 75,000 75,000 2,700,000 735,000 1,092,500 872,500 Net income (loss) 282,000 (115,000) 229,500 167,500 You have been assigned the task of making a recommendation to the president as to whether or not Department A should be eliminated. You have gathered the following information: i) All departments are housed in the same building. The store leases the entire building at a fixed annual rental rate. ii) One of the employees in Department A is Mary Charles, who has been with the company for many years. If Department A is eliminated, Ms. Charles will be transferred to another department. Her salary is GH20,000 per quarter. iii) If Department A is eliminated, the fixtures in the department will be transferred to the other departments. iv) If Department A is eliminated, the utilities bill will be reduced by about GH35,000 per quarter. v) One fourth of the insurance in Department A relates to the fixtures in the department; the remainder relates to the departments merchandise inventory. vi) The company has two service departments purchasing and warehouse. If Department A is eliminated, the company can discharge one full-time and one part-time person from these departments. The combined salaries and other employment costs of these employees is GH26,500. General office expenses will not change. REQUIRED: (A) Assume that the company has no alternative use for the space now being occupied by Department A. Prepare computations to show whether the department A should be eliminated. (You may assume that eliminating Department A would have no effect on the sales of the other departments). (B) Assume that the space being occupied by Department A is quite valuable and could be subleased at a rental rate GH300,000 per quarter. Would you advise the company to eliminate Department A and sublease the space? Show computations. (C) What other non-quantitative factors would you recommend that the company consider before deciding to eliminate Department A.