problem: The most recent monthly income statement for Kennaman Stores is given below:
|
|
Total
|
Store I
|
Store II
|
|
Sales
|
$2,000,000
|
$1,200,000
|
$800,000
|
|
Less variable expenses
|
1,200,000
|
840,000
|
360,000
|
|
Contribution margin
|
800,000
|
360,000
|
440,000
|
|
Less traceable fixed expenses
|
400,000
|
220,000
|
180,000
|
|
Segment margin
|
400,000
|
140,000
|
260,000
|
|
Less common fixed expenses
|
300,000
|
180,000
|
120,000
|
|
Net operating income
|
$100,000
|
($40,000)
|
$140,000
|
Kennaman is thinking closing Store 1st If Store 1st is closed, 1/4 of its traceable fixed expenses would continue unchanged. Also, the closing of Store I would result in a 20 percent decrease in sales in Store 2nd. [The reduce in sales would be the result of selling less units in store II, not due to decreased selling prices. In addition to sales, what other components in the budget will be affected?] Kennaman allocates common fixed expenses on the basis of sales dollars ($).
Required:
find out the overall increase or decrease in Kennaman's net operating income if Store 1st is closed.