Required: Compute the overall increase or decrease in the net operating income of Northern Stores if Store I is closed.
Jonathan Jacks is a retailer in the upper Plains. The most recent monthly income statement for Jonathan Jacks is given below:
Total Store I Store II
Sales $2,1000,000 $1,3000,000 $800,000
Variable Expense 1,260,000 882,000 378,000
Contrib. margin 840,000 418,000 422,000
Traceable fix. expens. 420,000 231,000 189,000
Segment margin 420,000 187,000 233,000
Common fix. expens. 350,000 210,000 140,000
Net operating incom. $70,000 $23,000 $93,000
Jonathan Jacks is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue. Also, the closing of Store I would result in a 20% decrease in sales in Store II. Jonathan Jacks allocates common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut down.
Required:
Compute the overall increase or decrease in the net operating income of Northern Stores if Store I is closed.
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