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Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows. Lessing Toy and Hobby Northern Division For the Year Ending January 31 ($000) Sales revenue $ 13,240 Costs Cost of goods sold $ 7,220 Advertising 502 Administrative salaries 822 Sales commissions 1,636 Rent and occupancy expense 2,070 Allocated corporate support 1,342 Total costs $ 13,592 Net loss before tax benefit $ (352) Tax benefit at 25% (88.00) Net loss $ (264.00) The CEO has asked for your thoughts on the decision to close the Northern Division stores. If the Northern Division is eliminated and the stores closed, neither total corporate support costs nor operations or costs of the Southern Division stores are expected to change. Required: Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. What will be the effect on LTH's income if the Northern Division stores are closed? Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. Note: Enter you answer in whole dollars, not in thousands e.g., 10,000 should be entered as 10,000,000.

Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows. Lessing Toy and Hobby Northern Division For the Year Ending January 31 ($000) Sales revenue $ 13,240 Costs Cost of goods sold $ 7,220 Advertising 502 Administrative salaries 822 Sales commissions 1,636 Rent and occupancy expense 2,070 Allocated corporate support 1,342 Total costs $ 13,592 Net loss before tax benefit $ (352) Tax benefit at 25% (88.00) Net loss $ (264.00) The CEO has asked for your thoughts on the decision to close the Northern Division stores. If the Northern Division is eliminated and the stores closed, neither total corporate support costs nor operations or costs of the Southern Division stores are expected to change. Required: Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. What will be the effect on LTH's income if the Northern Division stores are closed? Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. Note: Enter you answer in whole dollars, not in thousands e.g., 10,000 should be entered as 10,000,000.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter7: Allocating Costs Of Support Departments And Joint Products
Section: Chapter Questions
Problem 17E
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Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows. Lessing Toy and Hobby Northern Division For the Year Ending January 31 ($000) Sales revenue $ 13,240 Costs Cost of goods sold $ 7,220 Advertising 502 Administrative salaries 822 Sales commissions 1,636 Rent and occupancy expense 2,070 Allocated corporate support 1,342 Total costs $ 13,592 Net loss before tax benefit $ (352) Tax benefit at 25% (88.00) Net loss $ (264.00) The CEO has asked for your thoughts on the decision to close the Northern Division stores. If the Northern Division is eliminated and the stores closed, neither total corporate support costs nor operations or costs of the Southern Division stores are expected to change. Required: Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. What will be the effect on LTH's income if the Northern Division stores are closed? Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. Note: Enter you answer in whole dollars, not in thousands e.g., 10,000 should be entered as 10,000,000.
Transcribed Image Text:Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Recent demographic changes in the Northern Division area have led to declining foot traffic and sales in the LTH stores. Senior corporate executives have been asking whether the chain should close those stores and focus on the stores in the Southern Division. The most recent income statement for the Northern Division follows. Lessing Toy and Hobby Northern Division For the Year Ending January 31 ($000) Sales revenue $ 13,240 Costs Cost of goods sold $ 7,220 Advertising 502 Administrative salaries 822 Sales commissions 1,636 Rent and occupancy expense 2,070 Allocated corporate support 1,342 Total costs $ 13,592 Net loss before tax benefit $ (352) Tax benefit at 25% (88.00) Net loss $ (264.00) The CEO has asked for your thoughts on the decision to close the Northern Division stores. If the Northern Division is eliminated and the stores closed, neither total corporate support costs nor operations or costs of the Southern Division stores are expected to change. Required: Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. What will be the effect on LTH's income if the Northern Division stores are closed? Using the worksheet below, determine which revenues and costs are probably differential or not differential for the decision to close the Northern Division stores. Note: Enter you answer in whole dollars, not in thousands e.g., 10,000 should be entered as 10,000,000.
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