The most recent monthly income statement for Benner Stores is given below:??TotalStore AStore B?Sales$1,000,000$400,000$600,000?Variable expenses580,000160,000420,000?Contribution margin420,000240,000180,000?Traceable fixed expenses300,000100,000200,000?Store segment margin120,000140,000(20,000)?Common fixed expenses50,00020,00030,000?Net operating income$70,000$120,000$(50,000)Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-fourth of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 10 percent decrease in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars.Required:Determine the
monthly financial advantage (disadvantage) of closing Store B.
What will be an ideal response?
Loss in contribution margin if Store B is closed:
| ? | Store B loss | $(180,000) |
| ? | Store A loss (10% × $240,000) | (24,000) |
| ? | Total lost contribution margin | (204,000) |
| ? | Fixed costs avoided if Store B is closed (75% × $200,000) | 150,000 |
| ? | Financial advantage (disadvantage) of closing Store B | $(54,000) |
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