. The most recent monthly income statement for Sun City Stores is given below:
Total |
Store A |
Store B |
|
Sales |
$1,000,000 |
$400,000 |
$600,000 |
Variable expenses |
580,000 |
160,000 |
420,000 |
Contribution margin |
420,000 |
240,000 |
180,000 |
Traceable fixed expenses |
300,000 |
100,000 |
200,000 |
Store segment margin |
120,000 |
140,000 |
(20,000) |
Common fixed expenses |
50,000 |
20,000 |
30,000 |
Net operating income |
$70,000 |
$120,000 |
$($50,000) |
Due to its poor showing, consideration is being given to closing
Store B. Studies show that if Store B is closed, one-fourth of its
traceable fixed expenses will continue unchanged. The studies also
show that closing Store B would result in a 10 percent decrease in
sales in Store A. The company allocates common fixed expenses to
the stores on the basis of sales dollars.
Required:
Compute the overall increase or decrease in the company's operating
income if Store B is closed. (10 points.)
Overall decrease in the company's operating income if Store B is closed= $54,000
Working
Total | Store A | Store B | |
Sales | $ 3,60,000.00 | $ 3,60,000.00 | |
Variable expenses | $ 1,44,000.00 | $ 1,44,000.00 | |
Contribution margin | $ 2,16,000.00 | $ 2,16,000.00 | $ - |
Traceable fixed expenses | $ 1,50,000.00 | $ 1,00,000.00 | $ 50,000.00 |
Store segment margin | $ 66,000.00 | $ 1,16,000.00 | $ (50,000.00) |
Common fixed expenses | $ 50,000.00 | $ 20,000.00 | $ 30,000.00 |
Net operating income | $ 16,000.00 | $ 96,000.00 | $ (80,000.00) |
Overall income before closing Store B | $ 70,000.00 |
Overall income after closing Store B | $ 16,000.00 |
Net Decrease in Overall income | $ 54,000.00 |
. The most recent monthly income statement for Sun City Stores is given below: Total...
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