1. Western Apparel Company owns two stores and management is considering eliminating the East store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales.

	West	East	Total
Sales	$480,000	100,000	$580,000
Variable costs	262,500	55,000	315,500
Direct fixed costs	62,500	25,000	87,500
Segment margin	155,000	20,000	175,000
Allocated fixed costs	137,500	35,000	172,500
Net Income	$17,500	($15,000)	$2,500

Western feels that if they eliminate the East store that sales in the West store will decline by 25%. If they close the East store, overall company net income will:

Please show workings.

-----------------------------------------------------------------------------------

2. Maestro, a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and if the fixed costs are $60,000, how many Maestros must the company sell to realize a profit of $450,000?

Please show workings.

------------------------------------------------

3. Given a resource constraint, management should shift the focus of cost-volume-profit analysis to:

A) Increasing labor productivity and reducing output.

B) The product with the lowest variable cost per sales dollar.

C) The contribution margin per unit of the constraint.

D) Decreasing the firms breakeven point by increasing the selling price.