Tipton One-Stop Decorating sells paint and paint supplies, carpet, and wallpaper at a single-store location in suburban Des Moines. Although the company has been very profitable over the years, management has seen a significant 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 toll-free telephone numbers. Recent figures follow. Paint and Carpeting $460,000 Wallpaper Wapao $ 140,000 $ 112,000 $380,000 Sales Variable costs Tddns $322,000 $228,000 56,000 Fixed costs 75,000 45,000 $284,000 $397,000 157,000 Total costs 96,000 $63,000 $(17,000) Operating income (loss) 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 high-end carpet. Saless 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 fixed costs by 40 percent. 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 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 magazine-based firms have over Tipton that would allow these organizations to offer deeply Complete this question by entering your answers in the tabs below. Reg 1A Req 1B Req 2 Req 3 Calculate the income or loss if Tipton closes its wallpaper operation. Req 1A Req 1B Complete this question by entering your answers in the tabs below. Req 1B Req 1A Req 2 Req 3 Should Tipton close its wallpaper operation? Should Tipton close its wallpaper operation? Req 2 Req 1A Complete this question by entering your answers in the tabs below. Req 3 Req 1A Req 1B Req 2 What advantages might Internet- and magazine-based firms have over Tipton that would allow these organizations to offer deeply discounted prices-prices far below what Tipton can offer? (Select which of the following statements (is) are true by selecting an "X".) These companies probably carry little or no inventory. When a customer places an order, the firm simply calls its supplier and acquires the goods. The result may be lower expenditures for storage and warehousing. These firms do not need retail space for walk-in customers. Inter confi and magazine-based firms can conduct business globally. Tipton, on hand o a single store Moines. Internet - and magazine-based fims have the advantage of point-of-purchase displays and personalized selling. Internet - and magazine-based firms could have access to means of financing that Tipton might not. Req 2 Reg 3
