The most recent monthly income statement for Benner Stores is given below: Total Store A Store B Sales $1,000,000 $400,000 $600,000 Variable expenses 580,000 160,000 420,000 Contribution margin 420,000 240,000 180,000 Traceable fixed expenses 300,000 100,000 200,000 Store segment margin 120,000 140,000 (20,000) Common fixed expenses 50,000 20,000 30,000 Net operating income $70,000 $120,000 $(50,000) Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-half of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 20 percent decrease in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars. Required: Determine the monthly financial advantage (disadvantage) of closing Store B. What should they do?
The most recent monthly income statement for Benner Stores is given below:
|
|
|
Total |
Store A |
Store B |
|
|
Sales |
$1,000,000 |
$400,000 |
$600,000 |
|
|
Variable expenses |
580,000 |
160,000 |
420,000 |
|
|
Contribution margin |
420,000 |
240,000 |
180,000 |
|
|
Traceable fixed expenses |
300,000 |
100,000 |
200,000 |
|
|
Store segment margin |
120,000 |
140,000 |
(20,000) |
|
|
Common fixed expenses |
50,000 |
20,000 |
30,000 |
|
|
Net operating income |
$70,000 |
$120,000 |
$(50,000) |
Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-half of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 20 percent decrease in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars.
Required:
Determine the monthly financial advantage (disadvantage) of closing Store B. What should they do?
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