Question 8.2 Rocky Volcano Chocolate operates two stores, one in Edmonton and another in St. John’s. The following income statements were prepared for the most recent year: EdmontonSt. John’sNet sales$3,780,000$960,000Variable costs: Cost of goods sold1,512,000528,000 Sales commission189,00048,000 Utilities17,20015,300Contribution margin$2,061,800$368,700Fixed costs: Annual building lease84,00039,000 Salaries380,000180,000 Allocated corporate overhead750,000250,000 Amortization of store equipment & leasehold improvements60,00030,000Operating income (loss)$787,800$(130,300) The store equipment and leasehold improvements have no market value. The building leases can be cancelled without penalty.Required:Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?Should management close the St. John’s store? Assume that corporate overhead would be reduced by $100,000 if the St. John’s store is closed.

The breakeven point refers to the point at which the revenue of the organization equals the costs of…

Answered: Rocky Volcano Chocolate operates two…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question 8.2

Rocky Volcano Chocolate operates two stores, one in Edmonton and another in St. John’s. The following income statements were prepared for the most recent year:

	Edmonton	St. John’s
Net sales	$3,780,000	$960,000
Variable costs:
Cost of goods sold	1,512,000	528,000
Sales commission	189,000	48,000
Utilities	17,200	15,300
Contribution margin	$2,061,800	$368,700
Fixed costs:
Annual building lease	84,000	39,000
Salaries	380,000	180,000
Allocated corporate overhead	750,000	250,000
Amortization of store equipment & leasehold improvements	60,000	30,000
Operating income (loss)	$787,800	$(130,300)

The store equipment and leasehold improvements have no market value. The building leases can be cancelled without penalty.

Required:

Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?
Should management close the St. John’s store? Assume that corporate overhead would be reduced by $100,000 if the St. John’s store is closed.

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