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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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