Closing the Town Store would result in a 25% increase in Mall Store sales. $2700

ID: 2451224 • Letter: C

Question

Closing the Town Store would result in a 25% increase in Mall Store sales. $27000 of Town Store * traceable fixed costs CAN NOT be avoided. Use the following data to determine the increase (decrease) in Cosmo's operating income if the town store is closed. Sales less variable costs Contribution margin fixed expenses Store segment margin less common fixed expenses Operating income total $212000 107000 $105000 73000 32000 10000 $22000 mall store $92000 32000 $60000 32000 $28000 6000 $22000 town store $120000 75000 $45000 41000 $4000 S -0-($16000) ($ 4.000) ($ 3.000) $ 11.000 S 4,000 The following information is available on Company X: Sales $90.000 Net operating income $3,600 Stockholders' equity $250,000 Return on investment 12% Minimum required rate of return 10% Company X's residual income would be: $2.500 $26.400 $30,000 $600 $900 Which of the following statements is true? When production exceeds sales, a manufacturing company's variable costing net operating income will usually be greater than its absorption costing net operating income. The variable costing method is usually not used for external reporting purposes. The absorption costing method treats fixed production costs as period costs All of these

Explanation / Answer

In case of store discontinuation estimation, the unavoidable costs should be added with the continuing store.

Operating income after T. Store discontinuation

Details

M. Store

Sales

92,000 × 1.25 = 115,000

Less variable cost

32,000 × 1.25 = 40,000

Contribution

75,000

Less traceable fixed expenses

32,000 + 27,000 = 59,000

Store segment margin

16,000

Less common fixed expenses

6,000 + 4,000 = 10,000

Operating income

$6,000

Change in operating income = After – Before

= $6,000 - $22,000

= -$16,000

= (16,000)

Decrease in operating income is $16,000.

Answer: A