TOTEs Case udvertion Version LAB S E SEGMENT: DISCONTINUE OPERATING THE FACTORYS The cost accountants prepare Exhibit 5-C and present it to management each quarter. Costs are traced and or allocated to each division based on sales and actual division costs. Company-wide administrative costs are allocated based on sales; advertising and marketing costs are equally allocated to all divisions except for $3,000 of avoidable costs are traced directly to the factory store. The online sales staff and product representatives are paid on commission; whereas, the factory store sales staff are salaried. For the last few years, the Factory Store has barely broken even and is operating at a loss. Based on the information in the most recent report, management must decide whether to keep the factory store open. After completing your analysis using Exhibit 5-C, state your recommendations. EXHIBIT S-C: Income by sales division Income Statement by Sales Division Total 5006023180,00 Online Sales Product Reps Factory Store Sales Variable Costs: s 1,428,000 833,000 COGS Personnel s 1,022,160596,260 85,180 1,703,600 $ 118,750 57,120 61,630 Total Contribution Margin S 1,079,280 S 657,890 S 85,180 $ 1,822,350 348,720 175,110 3,2 $ 557,650 Marketing, Advertising and Selling Admin. Costs Salaries Allocated Admin and General Costs $ 38,183 38,183 114,550 6,000 38,183 S 6,000 $ 179,760 104,860 14,980 $299,600 Total Fixed Costs Operating Income (Loss) s 217943 143,043 59163 $ 420,150 137,500 $130,777 32,067 Analysis: Lost Contribution Margin Avoidable Costs Projected Change in Operating Income 39