Top management of Drexel-Hall is considering closing Store 3. The three stores are close enough together that management estimates closing Store 3 would cause sales at store 1 to increase by $60.000, and sales at Store 2 to increase by $120,000. Closing Store 3 is not expected to cause any change in common fixed assets.

Exercises 979 Profit Centers Drexel-Hall Store 1 Store 2 Store 3 Dollars Dollars Dollars Dollars Sales $1,800,000 100% $600,000 100% $600,000 100% $600,000 100% Variable costs 1,080,000 372,000 378,000 8 330,000 Contribution margin . . . $ 720,000 40% $228,000 38% $222,000 37% $270,000 45% Traceable fixed costs: controllable 432,000 120,000 102,000 210,000 Performance margin .. 5 288,000 16% $108,000 18% $120,000 20% $ 60,000 10% Traceable fixed costs: committed . . 180,000 48,000 66,000 66,000 F Store responsibility margin .... $ 108,000 6% $ 60,000 10% $ 54,000 9% $ (6,000) (1)% Common fixed costs . . ..... 36,000 Income from operations 72,000 + All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store I was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores