Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please help me with these questions Exercise 22.7 Closing an Unprofitable Business Unit (LO22-1, LO22-2, LO22-3, LO22-5) Shown as follows is a segmented income statement
Please help me with these questions
Exercise 22.7 Closing an Unprofitable Business Unit (LO22-1, LO22-2, LO22-3, LO22-5) Shown as follows is a segmented income statement for Drexel-Hall during the current month Profit Centers Drexel-Hall Store 2 Store 1 Store 3 Dollars Dollars $600,000 Dollars $600,000 330,000 $270,000 % Dollars % % % 100% Sales $1,800,000 1,080,000 $600,000 100% 100% 100% Variable costs Contribution margin 378,e00 $222,000 372,000 $228,000 60 62 38% 63 55 40% 37% 720,000 45 Traceable fixed costs: controllable 432,000 24 120,000 20 102,000 $120,000 66,000 17 210,000 60,000 66,000 35 Performance margin 20% 16% $108,000 18% 10 % 288,000 180,000 Traceable fixed costs: committed 10 48,000 8 11 11 $ (6,000) Store responsibility margin 10% 54,000 9% (1)% 6% 60,000 108,000 Common fixed costs 2. 36,000 Income from operations 4% 72,000 All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores. Top management of Drexel-Hall is considering closing Store 3. The three stores are close enough together that management estimates closing Store 3 would cause sales at Store 1 to increase by $60,000, and sales at Store 2 to increase by $120,000. Closing Store 3 is not expected to cause any change in common fixed costs. Compute the increase or decrease that closing Store 3 should cause in: a. Total monthly sales for Drexel-Hall stores. b. The monthly responsibility margin of Stores 1 and 2 c. The company's monthly income from operations. Complete this question by entering your answers in the tabs below. Required A Required B Required C Total monthly sales for Drexel-Hall stores. expected in total monthly sales Net decrease Required A Required B Complete this question by entering your answers in the tabs below. Required A Required B Required C The monthly responsibility margin of Stores 1 and 2. Monthly Responsibility Margin Store 1 Net increase Net increase Store 2 Required C Required A Complete this question by entering your answers in the tabs below. Required A Required B Required C The company's monthly income from operations. Expected increase in monthly operating incomeStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started