The following monthly segmented income statement is for Hals Hardware.

Management is concerned about the low profit associated with the tools product line and is considering dropping this product line. Allocated fixed costs are assigned to product lines based on floor space used by each product line (measured in square feet), resulting in the following percentages for garden supplies, tools, and paint, respectively: 20 percent, 50 percent, and 30 percent. If the tools product line is eliminated, total allocated fixed costs will be assigned as follows: 62.5 percent to garden supplies, and 37.5 percent to paint. All variable and direct fixed costs for the tools product line will be eliminated.

1. Perform differential analysis. Which alternative is best?.
2. Assume the space available from dropping tools can be used by the paint dept, resulting in increased revenues of $12,000 and increased variable costs of $4,000. No additional direct fixed costs would be incurred. Should Hals use the extra space to expand the paint line?
3. Give 2 Qualitative factors that may influence your decision

Tools Paint Total Sales revenue Variable costs Contribution margin Direct fixed costs Allocated fixed costs Profit Garden Supplies $20,000 11,000 $ 9,000 3,000 2,000 $ 4,000 $15,000 8,000 $ 7,000 1,500 5,000 $ 500 $23,000 9,000 $14,000 8,500 3,000 $ 2,500 $58,000 28,000 $30,000 13,000 10,000 $ 7,000