Transcribed Image Text: Contemporary Trends sells paint and paint supplies carpet and wallpaper at a single store location

Transcribed Image Text: Contemporary Trends sells paint and paint supplies carpet and wallpaper at a single store location
in suburban Baltimore Although the company has been very profitable over the year management
has seen very profitable over the year management has seen a significant decline in wallpaper
sales and earnings Much of this decline is attributable to the internet and to companies that
advertise deeply discounted prices in magazines and offer customer free shipping and toll free
telephone number recent figures follow:
Paint and supplies
Carpeting
wallpaper
|Sales
Less variable cost
Fixed costs
Total cost
| operating income
190,000
114,000
28,000
142,000
48.000
230,000
161,000
37,500
198,500
31,500
70,000
56,000
22,000
78,000
-8,000
Management is studying whether to drop wallpaper because of the changing market and
accompanying loss if the line is dropped the following changes are expected to occur
a. The vacated space will be remodeled at a cost of 15,000 and will be devoted to an
expanded line of high and carpet sales of carpet are expected to increase by
100,000
b. Contemporary can cut wallpapers fixed costs by 50%
c. Sales of paint and paint supplies are expected to fall by 30%
d. Considering (a), (b) and (c), explain your decision whether to drop or retain the
wallpaper

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