QUESTION (b) IS ASKING IF GREEN'S WALLPAPER HAS THIS INFORMATION SHOULD GREEN CLOSE ITS WALLPAPER OPERATION?

Decorating (Green) sells paint and paint supplies, carpet and wallpaper at a single-store location in Barrie, Ontario. Although the company has been very profitable over the years, management has and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and internet toll-free telephone numbers. Recent figures follow: Selling Price Paint & Supplies Carpeting Wallpaper Sales $380,000 $460,000 $140,000 Variable Costs ($228,000) ($322,000) ($112,000) Fixed Costs ($56,000) ($75,000) ($46,000) Operating Income $96,000 $63,000 ($18,000) Green is considering dropping wallpaper because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur: The vacated space will be remodeled at a cost of $12,400 and will be devoted to an expanded line of high-end carpet. Sales of carpet are expected to increase by $120,000 and the line's overall contribution margin ration will rise by 5 percentage points Green can cut wallpaper's fixed costs by 40%. Remaining fixed costs will continue to be incurred The firm will increase advertising expenditures by $25,000 to promote the expanded carpet line Required . . b) (3 marks) Assume that Green's wallpaper inventory at the time of the closure decision amounted to $23,700. How would you have treated this additional information in making the decision? c) (2 marks) What advantage might Internet and magazine-based firms have over Green that would allow these organizations of offer deeply discounted prices - prices far below what Green can offer. Decorating (Green) sells paint and paint supplies, carpet and wallpaper at a single-store location in Barrie, Ontario. Although the company has been very profitable over the years, management has and to companies that advertise deeply discounted prices in magazines and offer customers free shipping and internet toll-free telephone numbers. Recent figures follow: Selling Price Paint & Supplies Carpeting Wallpaper Sales $380,000 $460,000 $140,000 Variable Costs ($228,000) ($322,000) ($112,000) Fixed Costs ($56,000) ($75,000) ($46,000) Operating Income $96,000 $63,000 ($18,000) Green is considering dropping wallpaper because of the changing market and accompanying loss. If the line is dropped, the following changes are expected to occur: The vacated space will be remodeled at a cost of $12,400 and will be devoted to an expanded line of high-end carpet. Sales of carpet are expected to increase by $120,000 and the line's overall contribution margin ration will rise by 5 percentage points Green can cut wallpaper's fixed costs by 40%. Remaining fixed costs will continue to be incurred The firm will increase advertising expenditures by $25,000 to promote the expanded carpet line Required . . b) (3 marks) Assume that Green's wallpaper inventory at the time of the closure decision amounted to $23,700. How would you have treated this additional information in making the decision? c) (2 marks) What advantage might Internet and magazine-based firms have over Green that would allow these organizations of offer deeply discounted prices - prices far below what Green can offer