Question

Betty’s Fashions operates retail stores .....

Show work please!

6 100 points locations, and which c recent City or costs of the Mai Dvision 5 8.600.000 Costs 350,000 4,300000 580.000 1,160 000 1470 000 Cost of costs (sales commissions) Share of corporate administration Net loss before income tax beneft at40% rate Net loss Required: a. Using the worksheet below. getermine which revenues and costs are probably afferentai tor the decison to discontinse cty Dwision's operaions

Answer 1

The differential costs are the avoidable costs which will be avoided on closing the division

Analysis is as follows:

	Amount	Type	Reason
Sales Revenue	8,600,000	Differential	Specific to Division
Costs
Advertising	350,000	Differential	Division Specific
COGS	4,300,000	Differential	Division Specific
Divisional Administrative Salaries	580,000	Differential	Division Specific
Selling Costs (commissions)	1,160,000	Differential	Division Specific
Rent	1,470,000	Differential	Since rent will not be paid on closing the stores
Share of Corporate administration	950,000	NOT differential	Cost will remain same
Total Relevant/Differential Costs	7,860,000
Net Income/(Loss) before Income Tax	740,000

The division should not be discontinued since it will lead to a loss