Question

Shown as follows is a segmented income statement for Drexel-Hall during the current month. 60 Sales Variable costs Contribution margin Traceable fixed costs: controllable Performance margin Traceable fixed costs: committed Store responsibility margin Common fixed costs Income from operations Drexel-Hall Dollars $1,800,000 100% 1,080,000 $ 720,000 40% 432,000 24 $ 288,000 16% 180,000 10 $ 108,000 6% 36,000 $ 72,000 4% Store 1 Dollars $600,000 372,000 $228,000 120,000 $108,000 48,000 $ 60,000 100% 62 38% 20 18% 8 Profit Centers Store 2 Dollars $600,000 100% 378,000 63 $222,000 37% 102,000 17 $120,000 20% 66,000 11 $ 54,000 9% Store 3 Dollars $600,000 100 % 330,000 55 $270,000 45 % 210,000 35 $ 60,000 10 % 66,000 11 $ (6,000 (1) % 10% 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 $54,000, and sales at Store 2 to increase by $129,000. 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.

Answer 1

Answer: sales Store 1 = 600,000+ 54,000 654,000 stort 2 = 600,000 + 129,000 = 429,000 654,000+ 729,000 = 1,383,000 14:15 store-a. Diexel-Hall , store-1 Particulars Amour .) Amourlet) (9.) Amount C) O. sales. 1,383.000 100% 654.1000 1001 729,000 9001: Hociable cost 864,750 6251, 405,480 621 459,270 634. Contibition margin 519,050 371 248,500 381 269,730 31.1 Traceable ford.cos: Controllable) 222,000 KG 120,000 184 100,000 performance. Margin. 296,250 214. 128,580 807. 167,730 Traceable fixed cost 114,000 84 48,000 66,000 stence Resorsiklo margin 182,850 13:1 80500 131. 101,730 common fixed cost | 36,000 31 146,250 Income from opercetions @ Total monthly sabay for Drexel - Hall's-loves -]$ 1,383,000

Store s-lorea 101,730 monthly repubikathy wagen Responsbility marga : 80520 - Responsbility mergin (66,000) (be for elosing stores increase in margin & $ 14520 ($4,000) $47730 o ① company's monthly Incore from operations : income from operations - 146.250 inercase from operation - C$70,000) (be fore closing stars) . increase in in come from ope sections = ☆ 74,350 *