Boundaries, a chain of retail stores, sells books and music CDs. Condensed monthly income data are presented in the following table for November 20x4. (Ignore income taxes.)

Additional information:

• Management estimates that closing the mall store would result in a 10 percent decrease in down-town store sales, while closing the downtown store would not affect mall store sales.
• One- fourth of each store’s fixed expenses would continue through December 31, 20x5, if either store were closed.
• The operating results for November 20x4 are representative of all months.
  
  Required:
  1. Calculate the increase or decrease in Boundaries’ monthly operating income during 20x5 if the mall store is closed.
  2. The management of Boundaries is considering a promotional campaign at the mall store that would not affect the downtown store. Annual promotional expenses at the mall store would be increased by $ 180,000 in order to increase mall store sales by 10 percent. What would be the effect of this promotional campaign on the company’s monthly operating income during 20x5?
  3. One-half of the mall store’s dollar sales are from items sold at their variable cost to attract customers to the store. Boundaries’ management is considering the deletion of these items, a move that would reduce the mall store’s direct fixed expenses by 15 percent and result in the loss of 20 percent of the remaining mall store’s sales volume. This change would not affect the downtown store. What would be the effect on Boundaries’ monthly operating income if the items sold at their variable cost are eliminated?
  4. Construct an Excel spreadsheet to solve all of the preceding requirements. Show how the solution will change if the following information changes: the downtown store’s sales amounted to $ 235,000, and its variable expenses were $ 90,000.
  (CMA,adapted)

Transcribed Image Text:

Downtown Store Mall Store Total Sales.... Less: Variable expenses Contribution margin Less: Fixed expenses Operating income $240,000 $360,000 $600,000 252,000 348,000 $108,000 $252,000 96000 52,000 348000 $144000 60,000 120,000 180,00 $ 84,000$12000 72000