The most recent monthly income statement for Seven Flags Recreation is given below: Total Store A Store B Sales.................................. 1,200,000 $400,000 $800,000 Variable expenses............. 600,000
The most recent monthly income statement for Seven Flags Recreation is given below:
|
| Total | Store A | Store B |
| Sales.................................. | 1,200,000 | $400,000 | $800,000 |
| Variable expenses............. | 600,000 | 180,000 | 420,000 |
| Contribution margin.......... | 600,000 | 220,000 | 380,000 |
| Traceable fixed expenses.. | 350,000 | 100,000 | 250,000 |
| Store segment margin....... | 250,000 | 120,000 | 130,000 |
| Common fixed expenses | 240,000 | 80,000 | 160,000 |
| Net operating income........ | $ 10,000 | $40,000 | ($ 30,000) |
Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 25 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!
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