Question

100% 100% 100% 100 % 62 40% 37% 45 38% 20 Dollars $600,000 372,000 $228,000 120,000 $108,000 48,000 $ 60,000 Dollars $1,800,000 1,080,000 $ 720,000 432,000 $ 288,000 180,000 $ 108,000 36,000 $ 72,000 _17 Dollars $600,000 378,000 $222,000 102,000 $120,000 66,000 $ 54,900 Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs: committed Store responsibility margin Common fixed costs Income from operations Dollars $600,000 330,000 $ 270,000 210,000 $ 60,000 66,000 $ (6,000) 18% 20% 10% 9% (1) % All stores are similar in size, carry similar products, and operate in similar neighborhoods. Store 1 was established first and was built at a lower cost than were Stores 2 and 3. This lower cost results in less depreciation expense for Store 1. Store 2 follows a policy of minimizing both costs and sales prices. Store 3 follows a policy of providing extensive customer service and charges slightly higher prices than the other two stores. Top management of Drexel-Hall is considering closing Store 3. The three stores are close enough together that management estimates closing Store 3 would cause sales at Store 1 to increase by $53,000, and sales at Store 2 to increase by $134,000. Closing Store 3 is not expected to cause any change in common fixed costs. Compute the increase or decrease that closing Store 3 should cause in: a. Total monthly sales for Drexel-Hall stores. b. The monthly responsibility margin of Stores 1 and 2 c. The company's monthly income from operations. Complete this question by entering your answers in the tabs below. Required A Required B Required C The company's monthly Income from operations. Expected increase in monthly operating income

Answer 1

Contribution Margin is calculated by deducting the total variable cost from the total sale. The total fixed cost is deducted from the contribution margin to get operating profit or loss.operating profit or loss is change with the change in level of sales, total variable cost and total fixed incurred during the specific period of time.

The increase or decrease that closing a store 3 chaud causes being calccuated below: - Prexel-Hall store 1 store2 Dollars % Lollars &% Dollars % La) sales 1387000100653000 100 7 34000 100 / (b) Variable cost 867,280 62.5 404860 627 462,620 63 C contribution 519720375 248140 38 271580 37 margin Le traceable 222000 16. 120,000 18.38 102000 13.90 Fixed cost (controllable) Traceable 1180.000 112.98 180,000 12.98 480 48000 17.35 66000 18.99 Etxed cost (committed () Istores 620 Iresponsibility 11 7720 8.49 80,140 12.27 103,580 14.11 margin iconman Fixed 36000 260 cost b) come fon 81,720 5.89 Teretan (9) calculation of sales Que to closing the store 3 store 1 sale increased by $53000 stare i sale = $ 600,000 +8 53000 = $653.000 (11) (ii) store a sale increased by $134000 Istore 2 sale = $600,000 + 134000 =$734,000 Drexel Hall sale = =$ 653000+ $ 734000 = $ 13, $7,000 Traceable fixed cost such beprecat is included in Drexel-Hall is statment such Depreciation of store 3 at

(a) Total morth ly sale for Drexel - Hall story a sale Net Increase 187000 (1387000-1200,000) Hotel roce 1387000 (6) The monthly responsibility margin of store I and store 2 is calculated belowin menthly Responsibility Increase / (Decrease) I margin stere 1 80, 140 Increase store 2 1 103 580 Increase @ The company's monthly income hom operation: Income bom operation § Met Increase 9720(81,720 - 72000) Total income from 81,720 operation