Shown as follows is a segmented income statement for Drexel-Hall during the current month. 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 60 372,000 62 378,000 63 330,000 55 Contribution margin $ 720,000 40 % $ 228,000 38 % $ 222,000 37 % $ 270,000 45 % Traceable fixed costs: controllable 432,000 24 120,000 20 102,000 17 210,000 35 Performance margin $ 288,000 16 % $ 108,000 18 % $ 120,000 20 % $ 60,000 10 % Traceable fixed costs: committed 180,000 10 48,000 8 66,000 11 66,000 11 Store responsibility margin $ 108,000 6 % $ 60,000 10 % $ 54,000 9 % $ (6,000 ) (1 ) % Common fixed costs 36,000 2 Income from operations $ 72,000 4 % All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 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. 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 $66,000, and sales at Store 2 to increase by $119,000. Closing Store 3 is not expected to cause any change in common fixed costs. Compute the increase or decrease that closing Store 3 should cause in: a. Total monthly sales for Drexel-Hall stores. b. The monthly responsibility margin of Stores 1 and 2. c. The company's monthly income from operations.
Shown as follows is a segmented income statement for Drexel-Hall during the current month.
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 | 60 | 372,000 | 62 | 378,000 | 63 | 330,000 | 55 | ||||||||||||||||||||
Contribution margin | $ | 720,000 | 40 | % | $ | 228,000 | 38 | % | $ | 222,000 | 37 | % | $ | 270,000 | 45 | % | ||||||||||||
Traceable fixed costs: controllable | 432,000 | 24 | 120,000 | 20 | 102,000 | 17 | 210,000 | 35 | ||||||||||||||||||||
Performance margin | $ | 288,000 | 16 | % | $ | 108,000 | 18 | % | $ | 120,000 | 20 | % | $ | 60,000 | 10 | % | ||||||||||||
Traceable fixed costs: committed | 180,000 | 10 | 48,000 | 8 | 66,000 | 11 | 66,000 | 11 | ||||||||||||||||||||
Store responsibility margin | $ | 108,000 | 6 | % | $ | 60,000 | 10 | % | $ | 54,000 | 9 | % | $ | (6,000 | ) | (1 | ) | % | ||||||||||
Common fixed costs | 36,000 | 2 | ||||||||||||||||||||||||||
Income from operations | $ | 72,000 | 4 | % | ||||||||||||||||||||||||
All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less
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 $66,000, and sales at Store 2 to increase by $119,000. Closing Store 3 is not expected to cause any change in common fixed costs.
Compute the increase or decrease that closing Store 3 should cause in:
a. Total monthly sales for Drexel-Hall stores.
b. The monthly responsibility margin of Stores 1 and 2.
c. The company's monthly income from operations.
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images