Question
Richmond's is a retail store with eight departments, including a garden department that has been operating at a loss. The following condensed income statement gives
Richmond's is a retail store with eight departments, including a garden department that has been operating at a loss. The following condensed income statement gives the latest year's operating results:
Garden Department | All Other Departments | |||
---|---|---|---|---|
Sales | $504,000 | $3,600,000 | ||
Cost of sales | 302,400 | 2,340,000 | ||
Gross profit | 201,600 | 1,260,000 | ||
Direct expenses | 162,000 | 409,500 | ||
Common expenses | 72,000 | 468,000 | ||
Total expenses | 234,000 | 877,500 | ||
Net income (Loss) | $(32,400) | $382,500 |
a. Calculate the gross profit percentage for the garden department and for the other departments as a group.
Garden department Answer%
All other departments Answer%
b. Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for $27,000 per year, and the common expenses of the firm would be reduced by $6,700. What effect would this action have on Richmond's net income? (Ignore income tax in your calculations.)
Richmond's net income would Answerdecreaseincrease by $Answer.
c. It is estimated that if an additional $9,000 were spent on advertising, prices in the garden center could be raised an average of 5% without a change in physical volume of products sold. What effect would this have on the operating results of the garden department? (Again, ignore income tax in your calculations.)
Use a negative sign to indicate a net loss answer; otherwise do not use negative signs with your answers.
Garden Department Income Statement | |
---|---|
Sales | Answer |
Cost of sales | Answer |
Gross profit | Answer |
Direct expenses | Answer |
Common expenses | Answer |
Total expenses | Answer |
Net income (Loss) | Answer |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started