Solution-What effect would this action have on richmond net

What effect would this action have on richmond net income

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Reference no: EM133056037

Question - Analyze Operational Changes - Richmond's is a retail store with eight departments, including a garden department that has been operating at a loss. The following condensed income statement gives the latest year's operating results:

	Garden Department	All Other Departments
Sales	$504,000	$3,600,000
Cost of sales	302,400	2,340,000
Gross profit	201,600	1,260,000
Direct expenses	162,000	409,500
Common expenses	72,000	468,000
Total expenses	234,000	877,500
Net income (Loss)	$(32,400)	$382,500

Required -

a. Calculate the gross profit percentage for the garden department and for the other departments as a group.

b. Suppose that if the garden department were discontinued, the space occupied could be rented to an outside firm for $27,000 per year, and the common expenses of the firm would be reduced by $6,700. What effect would this action have on Richmond's net income?

c. It is estimated that if an additional $9,000 were spent on advertising, prices in the garden center could be raised an average of 5% without a change in physical volume of products sold. What effect would this have on the operating results of the garden department?

Reference no: EM133056037

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What effect would this action have on richmond net income

Reference no: EM133056037

Reference no: EM133056037

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