TriState Department Stores operates retail stores in both downtown (City) and suburban (Mall)
locations. The company has two responsibility centers: the City Division, which contains stores in down-town locations, and the Mall Division, which contains stores in suburban locations. TriState’s CEO is concerned about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent income statement follows. The CEO has asked for your advice on shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.

Required What revenues and costs are probably differential for the decision to discontinue this division’s operations? What will be the effect on TriState’s profits if the division is eliminated?

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TRISTATE DEPARTMENT STORES, CITY DIVISION Sales revenue.. Costs Divisional Income Statement For the Year Ending January 31 Advertising-City Division. Cost of goods sold Divisional administrative salaries Selling costs (sales commissions) Rent Share of corporate administration. Total costs Net loss before income tax benefit.. Tax benefit at 40% rate. Net loss $2,580,000 105,000 1,290,000 174,000 346,000 443,000 285,000 $2,643,000 $ (63,000) 25,200 $ (37,800)