Hamleys toy store is on regent street in londan. it has a magic department near the main door. suppose that management is considering dropping the magic department, which has consistnatly shown an opertaing loss.the predicted income statemnts, in thousands of pounds,follow:
total general merchndise electronic prodcts magic department
- sales 6,000 5,000 400 600
variable 4,090 3,500 200 390
- expenses
contribution 1,910(32%) 1,500(30%) 200(50%) 210(35%)
- margin
fixed exp.
- (compensation,
- depreciaton,
- property
- taxes,
- insurance etc.) 1,100 750 50 300
- operatin 810 750 150 (90)
The 300,000 pounds of magic department fixed expenses include the compensation of emplooyes of 120,000 pounds. these employes will be released if the magic department is abandoned. all of the magic department's equipement is fully depreciated, so nono of the 300,000 pound pertains to such items. furthermore, disposel values of equipment will be exactly offset by the cost of removel and remodeling.
if the magic department is dropped, the manager will use the vacated space for either more general marchindise or more electronic products. the expansion of general merchandise would not entail hiring any additional salaried help, but more electronic products would requre an additional person at an annual cost of 30,000 pounds. the manager thinks that sales of general merchandise would increase by 250,000 pounds, and electronic products by 200,000 pounds. the manager's modest predictions are partially based on the fact that she thinks the magic department has helped lure customers to the store and, improved overall sales. if the magic department is closed, that lure would be gone.should the magic departmen be closed? explain, showing computations.