Question
East Meets West Ltd. operates two stores, one in Victoria and another in Halifax. The following income statements were prepared for the most recent year:
East Meets West Ltd. operates two stores, one in Victoria and another in Halifax. The following income statements were prepared for the most recent year:
The store equipment and leasehold improvements have no market value. The building leases can be cancelled without penalty.
Required:
1) Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?
2) Should management close the Halifax store? Assume that corporate overhead would be reduced by $100,000 if the Halifax store is closed.
Victoria | Halifax | ||
Net Sales | $ 3,780,000 | $ 960,000 | |
Variable costs: | |||
Cost of goods sold | 1,512,000 | 528,000 | |
Sales Commission | 189,000 | 48,000 | |
Utilities | 17,200 | 15,300 | |
Contribution Margin | $ 2,061,800 | $ 368,700 | |
Fixed costs: | |||
Annual Building lease | 84,000 | 39,000 | |
Salaries | 380,000 | 180,000 | |
Allocated corporate overhead | 750,000 | 250,000 | |
Amortization of store equipment & leasehold improvements | 60,000 | 30,000 | |
Operating Income (loss) | $ 787,800
| -$ 130,300
|
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