Chapter 7, Problem 48P

Condensed monthly income data for Thurber Book Stores are presented in the following table for November 20x1. (Ignore income taxes.)

Additional Information:

• Management estimates that closing the downtown store would result in a 10 percent decrease in mall store sales, while closing the mall store would not affect downtown store sales.
• One-fourth of each store’s fixed expenses would continue through December 31, 20x2, if either store were closed.
• The operating results for November 20x1 are representative of all months.

Required:

1. 1. Calculate the increase or decrease in Thurber’s monthly operating income during 20x2 if the downtown store is closed.
2. 2. The management of Thurber Book Stores is considering a promotional campaign at the down town store that would not affect the mall store. Annual promotional expenses at the downtown store would be increased by $60,000 in order to increase downtown store sales by 10 percent. What would be the effect of this promotional campaign on the company’s monthly operating income during 20x2?
3. 3. One-half of the downtown store’s dollar sales are from items sold at their variable cost to attract customers to the store. Thurber’s management is considering the deletion of these item’s, a move that would reduce the downtown store’s direct fixed expenses by 15 percent and result in the loss of 20 percent of the remaining downtown store’s sales volume. This change would not affect the mall store. What would be the effect on Thurber’s monthly operating income if the items sold at their variable cost are eliminated?
4. 4. Build a spreadsheet: Construct an Excel spreadsheet to solve all of the preceding requirements. Show how the solution will change if the following information changes: the downtown store’s sales amounted to $126,000 and its variable expenses were $86,000.