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Home Improvement Company Relevant costs

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.

Solution Summary

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