Northern Stores is a retailer in British Columbia. The most recent monthly income statement for Northern Stores is given below:

Total

Store 1

Store II

Sales

$2,100,000

$1,300,000

$800,000

Less variable expense

1,260,000

$882,000

378,000

Contribution margin

$840,000

$418,000

$422,000

Less traceable fixed expense

420,000

231,000

189,000

Segment margin

$420,000

$187,000

$233,000

Less common fixed expense

350,000

210,000

140,000

Operating Income (Loss)

$70,000

($23,000)

$93,000

Northern is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue to be incurred. Also, the closing of Store I would result in a 20% increase in sales in Store II. Northern allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down.

Required:

a) Compute the overall increase or decrease in the operating income of Northern Stores if Store I is closed. (6 Marks)

b) Give two qualitative considerations that might be made in deciding whether to close the store.