To complete all parts of the problems you should prepare an Excel workbook and Word document. Please note, you must show your work in Excel, which includes providing the formulas in the cells, not just the summary value. You may not earn full points if you do not show your work in detail. Provide supporting responses either as part of the Excel document or as a separate Word document (400-750 words), being sure to properly label each response.

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 Supplies Carpeting Wallpaper

Sales ..........................................................................$380,000 $460,000 $140,000

Variable costs ............................................................$228,000 $322,000 $112,000

Fixed costs .................................................................. 56,000 75,000 45,000

Total costs ..................................................................$284,000 $397,000 $157,000

Operating income (loss) ............................................ $96,000 $63,000$ (17,000)

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. Sales of carpet are expected to increase by $120,000, and the lines overall contribution margin ratio will rise by five percentage points.

Tipton can cut wallpapers 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:

2. Assume that Tiptons 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 discounted pricesprices far below what Tipton can offer?