Reference no: EM132637179

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                           190,000                         230,000                   70,000

Less variable cost              114,000                      161,000                      56,000

Fixed costs                         28,000                         37,500                  22,000

Total cost                              142,000                   198,500                78,000

operating income                      48,000                       31,500                   -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

Question 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

Question b. Contemporary can cut wallpapers fixed costs by 50%

Question c. Sales of paint and paint supplies are expected to fall by 30%

Question d. Considering (a), (b) and (c), explain your decision whether to drop or retain the wallpaper