Question
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
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.) |
Downtown Store | Mall Store | Total | |||||||
Sales | $ | 240,000 | $ | 360,000 | $ | 600,000 | |||
Less: Variable expenses | 96,000 | 252,000 | 348,000 | ||||||
Contribution margin | $ | 144,000 | $ | 108,000 | $ | 252,000 | |||
Less: Fixed expenses | 60,000 | 120,000 | 180,000 | ||||||
Operating income | $ | 84,000 | $ | (12,000 | ) | $ | 72,000 | ||
Additional Information: | |
Management estimates that closing the mall store would result in a 10 percent decrease in downtown store sales, while closing the downtown store would not affect mall store sales. | |
One-fourth of each stores fixed expenses would continue through December 31, 20x5, if either store were closed. | |
The operating results for November 20x4 are representative of all months.
|
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? |
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