Home Gifts has three sales departments. dishes, clothing, and paper products. The store's condensed income statement...

Transcribed Image Text:

Home Gifts has three sales departments. dishes, clothing, and paper products. The store's condensed income statement for the year ended December 31, 20X1, is shown below. HOME GIFTS Condensed Income Statement Year Ended December 31, 20X1 Sales Cast of goods sold Grass profit Operating expenses Direct expenses Indirect expenses Total operating expenses Net income Dishes Clothing $285,000 $ 92,000 78,400 41,400 $206,600 $ 50,600 $ 49,500 $ 14,900 Paper Products $ 67,200 31,700 $ 35,500 $ 9,600 3,700 13,300 19,400 68,900 8,700 23,600 $137,700 $ 27,000 $ 22,200 The proprietor asked the auditor if the Clothing and/or Paper Products departments should be closed. In the opinion of both the owner and the auditor, if the Clothing department is closed, the total indirect expenses could possibly be reduced to $18,200. If only the Paper Products department is closed, the indirect expenses could possibly be reduced to a total of $25,000. In the opinion of the owner, if the Paper Products department is closed, a loss of $9,100 in sales could be lost by the Dishes department. This loss in sales would reduce the Dishes Cost of Goods Sold by $3,900. She also thinks that closing the Paper Products department would have no effect on sales of the Clothing department. Required: 1. Based on the preceding information, what would the estimated total profit or loss be if the Paper Goods department were closed? 2. What would the estimated total profit or loss be if the Clothing department were closed? Analyze: What is the current contribution margin for each department? Complete this question by entering your answers in the tabs below. Req 1 and 2 Analyze 1. Based on the preceding information, what would the estimated total profit or loss be if the Paper Goods department were clo 2. What would the estimated total profit or loss be if the Clothing department were closed? Dishes Clothing Paper Products Totals Close Paper Products Close Clothing Sales $ Cast of goods sold 285,000 $ 78,400 92,000 $ 67,200 $ 41,400 31,700 444,200 $ 367,900 151,500 115,900 Gross profit $ 206,600 $ 50,600 $ Direct operating expenses 49,500 14,900 35,500 $ 9,600 292,700 $ 252,000 $ 0 74,000 Contribution margin $ 157,100 $ 35,700 $ 25,900 $ 218,700 $ 252,000 $ Indirect operating expenses 19,400 8,700 3,700 Net profit $ 137,700 $ 27,000 $ 22,200 $ 31,800 186,900 $ 227,000 25,000 $ 18,200 (18,200) Req 1 and 2 Analyze > Complete this question by entering your answers in the tabs below. Req 1 and 2 Analyze What is the current contribution margin for each department? Dishes Clothing Paper Products Contribution margin $ 4,400 $ 16,300 $ 8,900x Home Gifts has three sales departments. dishes, clothing, and paper products. The store's condensed income statement for the year ended December 31, 20X1, is shown below. HOME GIFTS Condensed Income Statement Year Ended December 31, 20X1 Sales Cast of goods sold Grass profit Operating expenses Direct expenses Indirect expenses Total operating expenses Net income Dishes Clothing $285,000 $ 92,000 78,400 41,400 $206,600 $ 50,600 $ 49,500 $ 14,900 Paper Products $ 67,200 31,700 $ 35,500 $ 9,600 3,700 13,300 19,400 68,900 8,700 23,600 $137,700 $ 27,000 $ 22,200 The proprietor asked the auditor if the Clothing and/or Paper Products departments should be closed. In the opinion of both the owner and the auditor, if the Clothing department is closed, the total indirect expenses could possibly be reduced to $18,200. If only the Paper Products department is closed, the indirect expenses could possibly be reduced to a total of $25,000. In the opinion of the owner, if the Paper Products department is closed, a loss of $9,100 in sales could be lost by the Dishes department. This loss in sales would reduce the Dishes Cost of Goods Sold by $3,900. She also thinks that closing the Paper Products department would have no effect on sales of the Clothing department. Required: 1. Based on the preceding information, what would the estimated total profit or loss be if the Paper Goods department were closed? 2. What would the estimated total profit or loss be if the Clothing department were closed? Analyze: What is the current contribution margin for each department? Complete this question by entering your answers in the tabs below. Req 1 and 2 Analyze 1. Based on the preceding information, what would the estimated total profit or loss be if the Paper Goods department were clo 2. What would the estimated total profit or loss be if the Clothing department were closed? Dishes Clothing Paper Products Totals Close Paper Products Close Clothing Sales $ Cast of goods sold 285,000 $ 78,400 92,000 $ 67,200 $ 41,400 31,700 444,200 $ 367,900 151,500 115,900 Gross profit $ 206,600 $ 50,600 $ Direct operating expenses 49,500 14,900 35,500 $ 9,600 292,700 $ 252,000 $ 0 74,000 Contribution margin $ 157,100 $ 35,700 $ 25,900 $ 218,700 $ 252,000 $ Indirect operating expenses 19,400 8,700 3,700 Net profit $ 137,700 $ 27,000 $ 22,200 $ 31,800 186,900 $ 227,000 25,000 $ 18,200 (18,200) Req 1 and 2 Analyze > Complete this question by entering your answers in the tabs below. Req 1 and 2 Analyze What is the current contribution margin for each department? Dishes Clothing Paper Products Contribution margin $ 4,400 $ 16,300 $ 8,900x