Question

10.00 points Shown below i is a segmented income statement for Drexel-Hall during the current month Drexel-Hall Store 1 Store 3 Dolars $1,800,000 100% $600,000 100% s600,000 100% S600.000 100% Vañable costs 1,080,000 60 372,00062 378,000 63 330,00055 Contribution margin Traceable fioxed costs: controllable $ 720.000 40% 24 $228,000 38% $222,000 32,000 37%:;$270,000 210,000 45% 35 120,00020 102,00017 $288,000 16% $108,000 18% $120.000 20% S60.000 10% Traceable fixed costs: committed…… 180,00010 48,0008 66,00011 66,000 11 responsibility margin iiii! s 108,000 6% S60.000 10% S54,000 9% S (6,000) (1) % Common foxed costs 36,0002 income from operations $ 72,000 4% All stores are simlar in size, carry similar products, and operato in similar neighborhoods. Store 1 was established first and was bulit at 텨 lower cost than wore Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales pricos. Store 3 follows a policy of providing extensive customer service and charges sighity higher prices than the othdr two stores h together and sales Top management of Droxel Hall s considering closing Store 3. The three stores aro close hat mana at Store 2 to increase by $135,000 Closing Storo 3 is not expected to cause any change in common fixed costs by $48 Compute the increase or

Answer 1

Answer for a Store 1 Store 2 Drexel -Hall 600,000 600,000 $1,200,000 48,000 135,000 183,000 648,000 735,000 $1,383,000 Existed Sales Increase in Sales as Store closed New Sales So, Exprected Total Monthly Sales for Drexel-Hall is $1,383,000 Answer for b As Store 1 & Store 2 already running in positive Margin. So, Additional margin earned will directly increase the Store Responsibility Margin. So, we are finding out Contribution to be earned for additional sales added due to Store 3 close Store 1 Store 2 Contribution Margin Ratio 37% $48,000 $ 135,000 $ 18,240 49,950 38% Increase in Sales Increase in Contribution (Increase in Sales X Contribution Margin Ratio) Existed Store Responsibility Margin New Store Responsibility Margin 60,000 54,000 78240103,950 (Increase in Contribution Existed Store Responsibility Margin) New Monthly Responsibility Margin of Store 1 is $78,240 New Monthly Responsibility Margin of Store 2 is $103,950 Answer for c As we findout (b) above New Store Responsibility Margins are For Store 1 is 78,240 For Store 2 is $103,950 Store 2 Drexel- Hall $ 78,240 $ 103,950 182,190 $ 36,000 $ 146,190 Store 1 New Store Responsibility Margin Common Fixed Costs New Monthly income from operation (New Store Responsibility Margin Common Fixed Costs) So, Exprected Total Monthly income from operations for Drexel-Hall is 146,190