Problem Set 1. (20 points) 1. Fill out the blanks in color. If no answer key is needed, just leave the blank 2. Each cell MUST include a formula, link, or a working process. (except for the given number from the questions) 3. Directly typing only the answers on the cell won't get the full credits. (except for given numbers from the questions) 4. Sharing answers and files will result in the Zero Grade both giver and receiver. (Plagiarism will be check Toy Hult is on Sansom Street in San Francisco. It has a magic department near the main door. Suppose that management is considering dropping the magic department, which has consistently shown an operating loss. The predicted income statements are for ease of analysis, only three product lines are shown: Total Company 6,000,000 14,090,000 1,910,000 32% General Merchandise 5,000,000 (3,500,000 1,500,000 30% Electronic Products 400,000 (200,000) 200,000 50% Magic Department 600,000 (390,000) 210,000 35% Income statements ($) Sales Less Variable cost - Contribution Margin Contribution Margin (%) Less Fixed costs: Compensation of employees Other Fixed costs (Depreciation, Property taxes, insurance) Total Fixed cost = Operating Incomelloss) (390,000) (710,000) (1,100,000 810,000 (250,000) (500,000) (750,000 750,000 (20,000) (30,000) (50,000 150,000 (120,000) (180,000) (300,000) (90,000) The fixed costs include the compensation of employees, which is avoidable cost. That means that these employees will be released if the departments are abandoned. But all other fixed costs are unavoidable costs. If the magic department is dropped, the manager will use the vacated space for either more General Merchandise or more Electoric Products. The expansion of General Merchandise would not entail hiring any additional salaried help, but more Electronic Products would require an additional person at an annual cost of $30,000. The manager thinks that sales of General Mechandise would increase by $250,000, and Electronic Products by $200,000. Requirement 1. Should the Magic Department be closed without any expansion of other departments? Why? If not, why not? Company Total After Change Requirement 2. Prepare the incremental analysis of the two cases for the operational decision. Case 1. Less Incremetal Plus Incremetal Dropping Magic Department and Expanding General Company Total Before Changes of Dropping Changes of Expanding Merchandise Change Magic deprartment General Mechandise Sales Less Variable cost = Contribution Margin Less Avoidable (and/or Additional) Fixed costs = Contribution to Unavoidable Fixed costs Less Unavoidable Fixed costs = Operating Income (loss) Company Total Before Change Less Incremetal Plus Incremetal Changes of Dropping Changes of Expanding Magic deprartment Electronic Products Company Total After Change Case 2 Dropping Magic Department and Expanding Electronic Products Sales Less Variable cost = Contribution Margin Less Avoidable (and/or Additional) Fixed costs = Contribution to Unavoidable Fixed costs Less Un avoidable Fixed costs = Operating Income (loss) Requirement 3. Should the Magic Department be closed to expand other departments? Then which departement should be expanded? Why? If not, why not