Question
Ridley and Scott Mercantile operates two stores, one on Pharoah Avenue and the other on Sheffield Road. Results for the month of May, which is
Ridley and Scott Mercantile operates two stores, one on Pharoah Avenue and the other on Sheffield Road. Results for the month of May, which is representative of all months, are as follows: Pharoah Avenue Store Sheffield Road Store Total Sales revenue $82,100 $121,000 $203,100 Variable expenses 31,800 85,000 116,800 Contribution margin 50,300 36,000 86,300 Direct fixed expenses 19,600 41,000 60,600 Common fixed expenses 4,200 5,900 10,100 Total fixed expenses 23,800 46,900 70,700 Operating income $26,500 $(10,900) $15,600 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 Sheffield Road store would result in a 10% decrease in the Pharoah Avenue stores sales, while closing the Pharoah Avenue store would have no effect on the Sheffield Road stores sales.
Calculate the operating income if the Sheffield Road store is closed
Step 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