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Beige Computers City Division

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Beige Computers operates retail stores in both downtown (City) and suburban (Mall) locations.
The company has two responsibility centers: the City Division, which contains stores in downtown
locations, and the Mall Division, which contains stores in suburban locations. Beige’s CEO is concerned about the profitability of the City Division, which has been operating at a loss for the last
several years. The most recent income statement follows. The CEO has asked for your advice on
shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs
of the Mall Division

Beige Computers, City Division
Divisional Income Statement
For the Year Ending January 31
Sales revenue    12,900,000
Costs 
   Advertising - city division    525,000
   Cost of goods sold    6,450,000
   Divisional administrative salaries    870,000
   Selling costs (sales commissions)    1,730,000
   Rent    2,215,000
   Share of corporate administration    1,425,000
     Total costs    13,215,000
Net differential gain before income tax    (315,000)
Tax expense at 40% rate  126,200
Net differential gain from store   (189,000)

Required
What revenues and costs are probably differential for the decision to discontinue City Division’s
operations? What will be the effect on Beige’s profits if the division is eliminated?

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