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Closing a Department Decison

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Company ABC is a one-stop home decorating company that sells paint, carpet and wallpaper at a single store location.

Although the company has been very profitable over the years management has seen a significant decline in wallpaper sales and earnings. Much of the decline had been due to online Internet companies offering deep discounts.

Recent figures follow:

Paint Carpet Wallpaper
Sales 380,000 460,000 140,000
Variable costs 228,000 322,000 112,000
Fixed Costs 56,000 75,000 45,000
Total Costs 284,000 397,000 157,000
Operating Income 96,000 63,000 (17,000)

Company ABC is studying whether to drop wallpaper because of changing market and current loss
If the wallpaper line is dropped the following changes are expected:

The vacated space will be remodeled at a cost of 12,400 and will be devoted to carpet. Sales are expected to increase by 120,000 and the carpet line contribution margin will rise 5%

Company ABC can cut wallpaper fixed costs by 40%. Remaining fixed costs will continue to be incurred.

Customer who purchased wallpaper often bought paint. Sales of paint are expected to fall by 20%

The firm will increase advertising expenditures by 25,000 to promote the expanded carpet department

1. Should Company ABC close the wallpaper department? Show computation to support your answer.

2. Assume Company ABC's wallpaper inventory at the time of closure decision amounted to 23,700
How would you have treated the additional information in making the decision?

3. What advantages might Internet based firms have over Company ABC that would allow organizations to offer deeply discounted prices- prices far below what Company ABC can offer?

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Non-Profit Hospitals and Tax Exempt Statuses

Analyze the scenario regarding a nonprofit hospital, and determine if it is legally and ethically responsible to provide community benefits.

Responsibilities of Non-Profit Health Care Organizations

In 2006, 59% of the hospitals in the US were nonprofit. As you learned in the GAO report on nonprofit hospitals, to maintain this tax-exempt status, a hospital must provide benefit to the community, but there is some latitude by the IRS and other governmental agencies about what qualifies as community benefit.

In this Discussion, you will analyze the extent to which a nonprofit hospital is legally and ethically responsible to provide community benefit, using the ACHE decision-making model to guide your analysis of the following scenario:

The management team of Memorial Medical Center must make a decision regarding the continuation of one of its outpatient clinics. To provide better community service, MMC developed three outpatient clinics throughout a large metropolitan area. Over the past several years, one of the clinics has consistently been a financial loser. The losses have grown even as the costs of maintaining the clinic have increased. A primary reason for the negative financial performance is the high amount of non-reimbursed healthcare services—the clinic provides needed health care to a low-income part of the metropolitan area. Several members of the executive management team believe MMC has no alternative other than closing the clinic. One member of the management team, however, believes that the situation raises ethical concerns, and that the executive team seeks an ethics-grounded response to the problem. (Nelson, p. 9)

Review the GAO report (http://www.gao.gov/new.items/d08880.pdf), paying particular attention to its discussion about criteria for nonprofit status.

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If you were an administrator at MMC, what decision would you make?

What options does this hospital have? Clarify your ethical reasoning for each option.

Are the clinics helping MMC maintain its tax-exempt status? In what respect?

What are some of the options for MMC in this scenario? Which option do you think MMC should choose? What is the ethical reasoning that leads you to this conclusion?

Discuss the ethical obligations of nonprofit hospitals, in general, to benefit the community. Is it acceptable, do you think, for a hospital to do the bare minimum to maintain its tax-exempt status? Explain your reasoning.

I am to use the ACHE decision-making model to guide my analysis of the scenario in the attachment, and provide answers to the questions in attachment. Thank you very much.

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