Question
The most recent monthly income statement for ABC Stores is given below: Total Store A Store B Sales.................................. 1,200,000 $500,000 $700,000 Variable expenses............. 600,000 250,000
The most recent monthly income statement for ABC Stores is given below:
|
| Total | Store A | Store B |
| Sales.................................. | 1,200,000 | $500,000 | $700,000 |
| Variable expenses............. | 600,000 | 250,000 | 350,000 |
| Contribution margin.......... | 600,000 | 250,000 | 350,000 |
| Traceable fixed expenses.. | 400,000 | 100,000 | 300,000 |
| Store segment margin....... | 200,000 | 150,000 | 50,000 |
| Common fixed expenses | 150,000 | 62,505 | 87,495 |
| Net operating income........ | $ 50,000 | $87,495 | ($ 37,495) |
Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-third of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 50 percent increase in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars.
Compute the overall increase or decrease in the company's operating income if Store B is closed. Show your work!
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