Problem - Greenland Co., an organic products retailer, has two departments: Housewares and Gardenwares. The company's most recent monthly contribution margin format income statement is as follows:
|
Department
|
|
|
Housewares
|
Gardenwares
|
Total Company
|
|
Sales
|
$603,000
|
$362,000
|
$965,000
|
|
Variable expenses
|
$231,000
|
$150,000
|
$381,000
|
|
Contribution margin
|
$372,000
|
$212,000
|
$584,000
|
|
Fixed expenses
|
$64,000
|
$218.000
|
$282,000
|
|
Net operating income (loss)
|
Vt08 000
|
(UM)
|
5102 000
|
Interim reports indicate that $38,100 of the fixed expenses being charged to Gardenwares are allocated costs that will continue even if the Gardenwares Department is dropped. Also, eliminating the Gardenwares Department will result in a 19% decrease in sales for the Housewares Department.
What is the impact to the total company's profit if the Gardenwares Department is dropped?
a. Profit would decrease by $146,670
b. Profit would decrease by $102,780
c. Profit would decrease by $32,100
d. Profit would increase by $6,000