Calculate the gross profit percentage for the garden department and for the other departments as a group. Garden department Answer% All other departments Answer% 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? (Ignore income tax in your calculations.) Richmond's net income would Answer by $Answer. 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.
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 |
a. Calculate the gross profit percentage for the garden department and for the other departments as a group.
Garden department Answer%
All other departments Answer%
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? (Ignore income tax in your calculations.)
Richmond's net income would Answer by $Answer.
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? (Again, ignore income tax in your calculations.)
Use a negative sign to indicate a net loss answer; otherwise do not use negative signs with your answers.
| Garden Department Income Statement | |
|---|---|
| Sales | |
| Cost of sales | |
| Gross profit | |
| Direct expenses | |
| Common expenses | |
| Total expenses | |
| Net income (Loss) |
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