Chapter 8 Relevant Costs and Short-Term Decision Making 280 PROBLEMS-SET B Analyze Operational Changes The management of Manchester's Department Store is concerned about the operation of its sporting goods department, which has not been very successful. The follow- ing condensed income statement gives the latest year's results: IB. LO1 Sporting Goods DepartmentAll Other Sales $480,000 360,000 $120,000 $ 67,500 48,000 $2.400,000 1,560,000 S 840,000 $ 338,000 Direct expenses $115.500 S 4,500 240,000 $ 576,000 S 264,000 Required Calculate the gross profit percentage for the sporting goods department and for the other depart- ments as a group. It is estimated that if an additional $10,500 were spent on promotion of sporting goods, average prices can be raised 5% without affecting physical volume of goods sold. What effect would this have on the operating results of the sporting goods department? (Ignore the effect of income tax.) Alternatively, it is estimated that physical volume of goods sold could be increased 8% if an tional $15,000 were spent on promotion of sporting goods and prices were not increased. b. c. Assuming that operating expenses remain the same, what effect would this have on the results of the sporting goods department? (dgnore the effect of income tax.) operating