Question
Ridley and Scott Mercantile operates two stores, one on Cullumber Avenue and the other on Riverbed Road. Results for the month of May, which is
Ridley and Scott Mercantile operates two stores, one on Cullumber Avenue and the other on Riverbed Road. Results for the month of May, which is representative of all months, are as follows:
Cullumber Avenue Store | Riverbed Road Store | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Sales revenue | $83,100 | $120,000 | $203,100 | |||||||||
Variable expenses | 31,800 | 85,000 | 116,800 | |||||||||
Contribution margin | 51,300 | 35,000 | 86,300 | |||||||||
Direct fixed expenses | 19,000 | 40,000 | 59,000 | |||||||||
Common fixed expenses | 4,100 | 5,700 | 9,800 | |||||||||
Total fixed expenses | 23,100 | 45,700 | 68,800 | |||||||||
Operating income | $28,200 | $(10,700) | $17,500 |
The following information pertains to Ridley and Scotts operations.
Forty percent of each stores direct fixed expenses would continue if either store were closed. | |
Ridley and Scott allocates common fixed expenses to each store on the basis of sales dollars. | |
Management estimates that closing the Riverbed Road store would result in a 10% decrease in the CullumberAvenue stores sales, while closing the Cullumber Avenue store would have no effect on the Riverbed Road stores sales. |
(a1)
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Calculate the operating income if the Riverbed Road store is closed.
Operating income | $enter the operating income in dollars |
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