THY Stores Has Three Departments: Books, Magazines and Greeting Cards

THY Stores has three departments: Books, magazines and Greeting cards. Each department has its own staff costs and is allocated a share of store rental and managerial salary in proportion to its sales revenue. THY's accountant has produced the following data to highlight the unprofitability of books and magazines: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Books } & \text { Magazines } & \text { Greeting } & \text { Total } \\\hline \text { Sales revenue } & & & \text { Cards } & \\\hline \text { Variable costs } & 15000 & 40000 & 10000 & 65000 \\\hline \text { Fixed staffing cost for department } & 7500 & 16000 & 3000 & 26500 \\\hline \text { Shop fixed costs } & 4000 & 8000 & 6000 & 18000 \\\hline & 3692 & 9846 & 2462 & 16000 \\\hline\end{array}$$ THY Stores should:

A) Close the books and greeting card departments as they are both loss making
B) Close the greeting card department only because the books department is almost at breakeven point
C) Close the greeting card department because there is no contribution towards shop fixed costs
D) Retain all departments because they are all making a contribution towards shop fixed costs

Correct Answer:

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