According to the financial position analyzed, Restaurant
Department was making losses. Therefore, the management considered to close
down the department. But, closing down a department definitely would face
various consequences for both financial and non-financial consequences.
the financial consequences that Shopping Ltd would face is the store need to
pay the salary of the worker of Restaurant Department such as Claude.
Therefore, it would affect the profit of Shopping Ltd as Claude is the one who
attracted the customers to shop and eat at the Shopping Ltd. This is because
Claude had become a famous chef when he entered and won the potato-sculpting
competition. He obviously won the customer interest to go to the restaurant and
do some shopping instead. That is why closing down the Restaurant Department
would decline the sales of Shopping Ltd as it will also affect the sales of the
other department. According to some resources, overall profit will be affected
as the result of the reduction of sales.
than that, Shopping Ltd would be facing the increase in contribution margin of
the remaining departments and this also would lead to the decline in overall
profit. Fixed cost are not varying according to the production amount,
therefore, all of the four departments need to share the cost. By closing down
the restaurant department, the amount of fixed cost that need to be shared by
the other department would be increasing which could result in declining of the
overall profit. This could be shown in the working marginal costing statement
before the closing of restaurant department, the total contribution was $….
Upon closing down the restaurant department, the contribution margin now has
increased to $…. This proved that the other department need to share a higher
non-financial consequence that Shopping Ltd might face is losing their
potential customer that do not like to involve with the business that are
reducing their employees. This is because, for some customer, they would think
that the business is having difficulties running the business that brought to
the retrenchment of workers. On the other hand, this could give the business
some kind of bad image as the customer would think that the business is no
longer profitable. On top of that, by cutting down the employees, they might end
up being unemployed and unemployment seems bad. They also have their own
responsibilities as to support their family and also themselves and without a
job, they cannot do it. Most customer preferred not to associated with this
kind of business.