J. P. Max Department Stores J. P. Max is a department store carrying a large and varied stock of merchandise. Management is considering leasing part of its floor space for $72 per square foot per year to an outside jewelry company that would sell merchandise.
Two areas currently in use are being considered: home appliances (1,000 square feet) and televisions (1,200 square feet).
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These departments had annual profits of $64,000 for appliances and $82,000 for televisions after allocated fixed occupancy costs of $7 per square foot were deducted. Allocated fixed occupancy costs include property taxes, mortgage interest, insurance, and exterior maintenance for the department store.
Required: Considering all the relevant factors, which department should be leased and why? Used by permission of McGraw-Hill.
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