UNPROFITABLE SEGMENT: DISCONTINUE OPERATING THE FACTORY STORE The cost accountants prepare Exhibit 5-C and present it to management cach quarter. Costs are traced or allocated to each division based on sales and actual division costs. Company-wide administrative costs are llocated based on sales; advertising and marketing costs are directly traced to each division. The online sales staff and product representatives are paid on commission; whereas, the factory store sales staff are salaried and jobs would be eliminated if division was closed. 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 by answering the questions on the next page. EXHIBIT 5-C: Income by sales division T.O.T.E.S. Income Statement by Sales Division Online Sales $ 1,485,000 Product Reps Factory Store $ 866,250 $ 123,750 S Total 2,475,000 888,030 59,400 537,570 $ $ $ 518,018 $ 39,600 $ 308,633 $ 74,352 - 49,398 $ $ $ 1,480,400 99,000 895,600 $ Sales Variable Costs: COGS Sales Commissions Contribution Margin Marketing, Advertising and Selling Admin. Costs Salaries Allocated Admin and General Costs Operating Income (Loss) 47,310 - 382,650 107,610 $ $ $ $ 31,540 $ - $ 223,213 S 53,880 $ 15,000 $ 12,000 $ 31,888 $ (9,490) $ 93,850 12,000 637,750 152,000 $ $ Analysis: Contribution Margin 49,398 Avoidable Costs Projected Change In Operating Income T.O.T.E.S. CASE STUDY - HOODOO I income increase (or decrease) if T.O.T.E.S. closed the factory store? Should management keep the factory store open or close it? Why or why not