Question - Fresh Juice has three locations in Kamloops: Downtown, North Shore and Dufferin. Management is concerned about the performance of the downtown location, the rent is high and management is debating closing the store. A company-wide segmented income statement follows:
|
|
Total
|
Down-
town
|
North Shore
|
Dufferin
|
|
Sales
|
$900,000
|
$300,000
|
$350,000
|
$250,000
|
|
Variable Expenses
|
610,000
|
210,000
|
225,000
|
175,000
|
|
Contribution Margin
|
290,000
|
90,000
|
125,000
|
75,000
|
|
Traceable Fixed Expenses
|
225,000
|
110,000
|
75,000
|
40,000
|
|
Territorial Segment Margin
|
65,000
|
(20,000)
|
50,000
|
35,000
|
|
Common Fixed Expenses
|
40,000
|
|
|
|
|
Net Operating Income
|
$25,000
|
|
|
|
The North Shore and Dufferin locations could expect a 5% decrease in revenues due to lost promotional synergies closing the prominent downtown location.
Required:
Prepare a new segmented income statement assuming the Downtown location is closed.
Should the company close the Downtown location (type YES or NO below)?
What will be the effect on net operating income if the Downtown location is closed (state whether net operating income will increase or decrease and by what amount)?