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# Can you help me with this exercise? Tipton One—Stop Decorating...

Can you help me with this exercise?

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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 Carpeting Supplies Wallpaper Sal es 5201]!) 3901!!) 1331]!) Va ria bl e costs 3121]!) 2241!!) 1031]!) Fixed costs 901]!) 64,01!) 321]!) Total costs 4021]!) 2331!!) 1401]!) Operating income "0553 1131]!) 1021!!) [21]!)J Ti pton 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. 1: The vacated space will be remodeled at a cost of 522,51!) and will be devoted to an expanded line of high—end carpet. Sales of carpet are expected to increase by 5131i)1]!) and the line's overall contribution margin ratio w ise by five percentage points. 2: Tipton can cut wallpaper's fixed costs by El) percent. Remaining fixed costs will continue to be incurred. 3: Customers who purchased wallpaper often bought paint and paint supplies. Sales of paint and paint supplies are expected to fall by 31) percent. 43 The firm will increase advertising expenditures by 535,04!) 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 530,04!) How would you have treated this additional information in making the declsion? 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 th e solution will ch ange if the follow ng information ch anges: sales w ere 5416,", 5454),CH]), and 514l)1!]), for carpeting, paint and supplies, and wallpaper, respectively.

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