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 ___% All other departments _% 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 Answerdecreaseincrease by $_____. 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 Answer Cost of sales Answer Gross profit Answer Direct expenses Answer Common expenses Answer Total expenses Answer Net income (Loss) Answer

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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 _______%

All other departments _______%

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 Answerdecreaseincrease by $_______.

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	Answer
Cost of sales	Answer
Gross profit	Answer
Direct expenses	Answer
Common expenses	Answer
Total expenses	Answer
Net income (Loss)	Answer

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