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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.

 

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M923283

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