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Tipton OneStop 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 jears, management has seen a signifieant 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: Tipton is studying whether to drop wallpaper because of the changing market and accomparying 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 highend earpet. 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 eosts by 40 percent. Remaining fixed costs will continue to be ineurred. - 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 inerease advertising expenditures by $25,000 to promote the expanded carpet line. Required: 1. Should Tipton close its wallpaper operation? Show computations to support jour 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 magazinebased firms have over Tipton that would allow these organizations to offer deeply discounted prices-prices far below what Tipton can offer

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