All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were 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 prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores.

Top management of Drexel-Hall is considering closing Store 3. The three stores are close enough together that management estimates closing Store 3 would cause sales at Store 1 to increase by $50,000, and sales at Store 2 to increase by $112,000. Closing Store 3 is not expected to cause any change in common fixed costs.

Shown as follows is a segmented income statement for Drexel-Hall during the current month. Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs committed Store responsibility margin Common fixed costs Income from operations Drexel-Halt Dollars $1,800,000 100 1,080,000 60 5 720,000 405 432,000 24 $ 280,000 164 180,000 10 $ 100,000 36,000 2 5 72.000 41 Store 1 Dollars 5600,000 100 372.000 62 $220,000 38 120,000 20 $100,000 189 48,000 $ 60,000 104 Profit Centers Store 2 Dollars $600,000 100 378,000 $222.000 370 102,000 17 $120,000 209 66,000 $ 54.000 9 Store 3 Dollars $600,000 100 330,000 55 5270,000 45 210,000 35 $ 60,000 10 66.000 11 $ 6,000) (1)