$332,500 Segment margin $537,500 $550,000 ($12,500) Common fixed expenses $370,000 $210,000 $160,000 Net income $167,500 $340,000 ($172,500)
Your Company has the following operations:
|
total |
Store 1 |
Store 2 |
|
|
Sales |
$2,100,000 |
$1,300,000 |
$800,000 |
|
Variable costs |
$1,065,000 |
$585,000 |
$480,000 |
|
Contribution margin |
$1,035,000 |
$715,000 |
$320,000 |
|
Traceable fixed costs |
$497,500 |
$165,000 |
$332,500 |
|
Segment margin |
$537,500 |
$550,000 |
($12,500) |
|
Common fixed expenses |
$370,000 |
$210,000 |
$160,000 |
|
Net income |
$167,500 |
$340,000 |
($172,500) |
Your Company is considering closing Store 2. If Store 2 is closed, 65% of its traceable fixed expenses could be avoided. Also, the closing of Store 2 would result in a 15% increase in sales in Store 1. Your Company allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down. What is the increase or (decrease) in the net income if Store I is closed?
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