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    Home Improvement Company Relevant costs

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    Home Improvement Company, a retail home store, has two major divisions - outdoor and indoor. Here is the data on their income and expenses:
    Total Indoor Outdoor
    Sales $85,000 $50,000 $35,000
    Variable expenses 35,000 15,000 20,000
    Contribution margin 50,000 35,000 15,000
    Fixed expenses:
    Advertising 5,000 2,000 3,000
    Supervisor salaries 19,000 10,000 9,000
    Store insurance 2,000 1,000 1,000
    General administrative overhead 11,000 8,000 3,000
    Total fixed expenses 37,000 21,000 16,000
    Net operating income (loss) $13,000 $14,000 (1,000)

    Due to the loss, the general manager is considering closing the outdoor division and just focusing on the indoor division. If the division were closed, the supervisor salary and the advertising costs could be eliminated. Should the division be closed?

    Please show your computations to support your answer.

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    Solution Summary

    The solution recommedation whether the division of Home Improvement Company should be closed or not.