Question
Ridley and Scott Mercantile operates two stores, one on Maple Avenue and the other on Fenner Road. Results for the month of May, which is
Ridley and Scott Mercantile operates two stores, one on Maple Avenue and the other on Fenner Road. Results for the month of May, which is representative of all months, are as follows: Maple Avenue Store Fenner Road Store Total Sales $80,700 $120,000 $200,700 Variable expenses 31,900 85,000 116,900 Contribution margin 48,800 35,000 83,800 Direct fixed expenses 19,500 41,000 60,500 Common fixed expenses 4,300 5,200 9,500 Total fixed expenses 23,800 46,200 70,000 Operating income $25,000 $(11,200 ) $13,800 The following information pertains to Ridley and Scotts operations. One-fourth 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 Fenner Road store would result in a 10% decrease in the Maple Avenue stores sales, while closing the Maple Avenue store would have no effect on the Fenner Road stores sales.
Calculate the operating income if the Fenner Road store is closed.
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