revenues and costs are probably differential or no
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 | $ 12,740 |
|---|---|
| Costs | |
| Cost of goods sold | $ 6,720 |
| Advertising | 497 |
| Administrative salaries | 817 |
| Sales commissions | 1,631 |
| Rent and occupancy expense | 2,065 |
| Allocated corporate support | 1,337 |
| Total costs | $ 13,067 |
| Net loss before tax benefit | $ (327) |
| Tax benefit at 25% | (81.75) |
| Net loss | $ (245.25) |
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?
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