Summary ACC650 T8.docx Problem 14 - 47 Closing an Unprofitable Department Grand Canyon University: ACC650 Exercise 14 “ 47 1.According to the calculations provided below Tipton should not close the wallpaper operations. As seen from the calculations above

PROBLEM 14 – 47 CLOSING AN UNPROFITABLE DEPARTMENT 1




Problem 14 - 47 Closing an Unprofitable Department



Grand Canyon University: ACC650

, PROBLEM 14 – 47 CLOSING AN UNPROFITABLE DEPARTMENT 2

Exercise 14 – 47



1. According to the calculations provided below Tipton should not close the wallpaper

operations.

Requirment 1



Paint and
Particulars Supplies Carpeting Wallpaper
Sales $380,000 $460,000 $140,000
Less: Variable Cost $228,000 $322,000 $112,000
Contribution Margin $152,000 $138,000 $28,000
Contribution Margin Ratio 40% 30% 20%
If Wallpaper Closes:
Loss of wallpaper contribution ($28,000)
Remodeling Expense $12,400
Increased profit of carpet sales $65,000
Fixed Cost Savings ###
Decreased contribution margin from paint and
supplies $30,400

As seen from the calculations above if Tipton closes its wallpaper operations then the

company would be worse off because it would cost the company a loss of $12,800 if it

discontinued the wallpaper operations. With the loss of $12,800 Tipton would decrease

from an operating income of $142,000 down to $129,200 as shown in the calculations

below.

Loss of wallpaper contribution

Less: Remodeling Expense
Increased profit of carpet sales (Calculation Shown Below)
Fixed Cost Savings
Decreased contribution margin from paint and supplies
Increased advertising expense
Income or (loss)

Increased profit of carpet sales

Particulars Amount ($)