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Tipton OneeStop Decorating sells paint and paint supplies, carpet. and wallpaper at a singleestore location in suburban Des Moines. Although the company has been very

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Tipton OneeStop Decorating sells paint and paint supplies, carpet. and wallpaper at a singleestore location in suburban Des Moines. Although the company has been very protable over the years, management has seen a signicant decline in wallpaper sales and earnings. Much of this decline is attributable to the Internet and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and tollfree telephone numbers. Recent figures follow. Paint and Supplies Carpeting Wallpaper Sales $383,339 $453,333 $ 149,933 Variable costs $228,989 $322,988 $ 112,699 Fixed (05125 55,339 75,333 45,993 Total costs $284,339 $397,333 $ 157,933 Operating income {loss} ll! 95,939 $ 53,933 $ (17,999) Tipton is studying whether to drop wallpaper because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur: . The vacated space will be remodeled at a cost of $12,400 and will be devoted to an expanded line of highend carpet. Sales of carpet are expected to increase by $120,000, and the line's overall contribution margin ratio will rise by five percentage points. - Tipton can cut wallpaper's xed costs by 40 percent. Remaining fixed costs will continue to be incurred. - Customers who purchased wallpaper oen bought paint and paint supplies. Sales of paint and paint supplies are expected to fall by 20 percent. . The firm will increase advertising expenditures by $25,000 to promote the expanded carpet line. Required: 1-a. Calculate the income or loss if Tipton closes its wallpaper operation. 1-b. Should Tipton close its wallpaper operation? 2. Assume that Tipton's wallpaper inventory at the time of the closure decision amounted to $23,700. How would you have treated this additional information in making the decision? 3. What advantages might Internet and magazinebased rms have over Tipton that would allow these organizations to offer deeply discounted pricesprices far below what Tipton can offer? Req 1A Req 1B Req 2 Reg 3 Calculate the income or loss if Tipton closes its wallpaper operation.Req 1A Req 1B Req 2 Req 3 Should Tipton close its wallpaper operation? Should Tipton close its wallpaper operation?Req 1A Req IB Assume that Tipton's wallpaper inventory at the time of the closure decision amounted to $23,700. How would you have treated this additional information in making the decision? OThis cost IS important. The revenue generated from the sale ofthis inventory IS relevant to the closure decision. OThis cost should he ignored, The inventory cost is sunk Regardless of whether the department is closed, Tlpton will have a wallpaper inventory of $23,700

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