Analyze Operational Changes

Richmond$$s is a retail store with eight departments, including a garden department that has been operating at a loss. The following condensed income statement gives the latest year$$s operating results:

Garden DepartmentAll Other DepartmentsSales$$336,000$$$2,400,000$Cost of sales$201,6001,560,000$Gross profit$134,400840,000$Direct expenses$108,000273,000$Common expenses$48,000312,000$Total expenses$156,000585,000$Net income $($Loss$)$$$(21,600)$$$255,000$

a$.$ Calculate the gross profit percentage for the garden department and for the other departments as a group.

Garden department Answer $1\%$

All other departments Answer $2\%$

b$.$ Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for $$18,000$ per year, and the common expenses of the firm would be reduced by $$4,500.$ What effect would this action have on Richmond$$s net income? $($Ignore income tax in your calculations.$)$

Richmond's net income would Answer $3$decreaseincrease by $Answer $4.$

c$.$ It is estimated that if an additional $$6,000$ were spent on advertising, prices in the garden center could be raised an average of $5\%$ without a change in physical volume of products sold. What effect would this have on the operating results of the garden department? $($Again$,$ ignore income tax in your calculations.$)$

Use a negative sign to indicate a net loss answer; otherwise do not use negative signs with your answers.

Garden Department Income StatementSalesAnswer $5$Cost of salesAnswer $6$Gross profitAnswer $7$Direct expensesAnswer $8$Common expensesAnswer $9$Total expensesAnswer $10$Net income $($Loss$)$Answer $11$