Question
Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below: Total Store I Store
Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below:
Total | Store I | Store II | |
Sales | $2,100,000 | $1,300,000 | $800,000 |
Less variable expenses | 1,300,000 | 942,000 | 358,000 |
Contribution margin | 800,000 | 358,000 | 442,000 |
Less traceable fixed expenses | 300,000 | 111,000 | 189,000 |
Segment margin | 500,000 | 247,000 | 253,000 |
Less common fixed expenses | 500,000 | 250,000 | 250,000 |
Net income (loss) | $0 | ($3,000) | $3,000 |
Northern is considering closing Store I. If Store I closed, one-half of its traceable fixed expenses would continue to be incurred. Also, the closing of Store I would result in a 10% decrease in contribution margin in Store II. Northern allocates common fixed expenses based on sales dollars and none of these costs would be saved if a store were shut down. Required: Compute the overall increase or decrease in the net income of Northern Stores if Store I closed.
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