Essay Grade

Complete all items for Problem 14-47 in the textbook.
All parts of the problems should be prepared in an Excel workbook. Provide supporting responses either as
part of the Excel document or as a separate Word document (400-750 words), being sure to properly label
each response. Please note, you must show your work in Excel, which includes providing the formulas in the
cells, not just the summary value. You may not earn full points if you do not show your work in detail.
At least two external sources should be cited.
Save your assignment as Lastname_FirstnameACC650_T8.docx.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student
Success Center. An abstract is not required.
You are required to submit this assignment to Lopeswrite.
Problem 14–47
Closing an Unprofitable Department
(LO 14-4, 14-5)
1. Income (loss) from closure:
$(12,800)
Tipton One-Stop Decorating sells paint and paint supplies, carpet, and wallpaper at a single-store location
in suburban Des Moines. Although the company has been very profitable over the years, 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 customers
free shipping and toll-free telephone numbers. Recent figures follow.
Paint and
Supplies Carpeting Wallpaper
Sales ……………………………………………………………………….. $380,000 $460,000 $140,000
Variable costs …………………………………………………………… $228,000 $322,000 $112,000
Fixed costs ……………………………………………………………….. 56,000 75,000 45,000
Total costs ……………………………………………………………. $284,000 $397,000 $157,000
Operating income (loss) …………………………………………….. $ 96,000 $ 63,000 $ (17,000)
Tipton 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:
• The
vacated space will be remodeled at a cost of $12,400 and will be devoted to an expanded line
of high-end carpet. Sales of carpet are expected to increase by $120,000, and the line’s overall contribution
margin ratio will rise by five percentage points.
• Tipton
can cut wallpaper’s fixed costs by 40 percent. Remaining fixed costs will continue to be incurred.
• Customers
who purchased wallpaper often bought paint and paint supplies. Sales of paint and paint
supplies are expected to fall by 20 percent.
• The
firm will increase advertising expenditures by $25,000 to promote the expanded carpet line.
Required:
1. Should Tipton close its wallpaper operation? Show computations to support your answer.
2. Assume that Tipton’s wallpaper inventory at the time of the closure decision amounted to $23,700.
How would you have treated this additional information in making the decision?
3. What advantages might Internet- and magazine-based firms have over Tipton that would allow
these organizations to offer deeply discounted prices—prices far below what Tipton can offer?
4. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show how
the solution will change if the following information changes: sales were $400,000, $450,000, and
$130,000, for paint and supplies, carpeting, and wallpaper, respectively.

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