question: what is the increase or (decrease) in the net income if store 2 is closed? The following date relates to Your Company:TotalStore 1Store 2Sales$2,100,000$1,300,000$800,000VC$1,065,000$585,000$480,000CM$1,035,000$715,000$320,000Traceable fixed costs$497,500$165,000$332,500Segment margin$537,500$550,000($12,500)Common fixed costs$370,000$210,000$160,000$167,500$340,000($172,500)NIYour Company is considering closing Store 2. If Store 2 is closed, 65% of its traceable fixed expenses could beavoided. Also, the closing of Store 2 would result in a 15% increase in sales in Store 1. Your Company allocatescommon fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shutdown. What is the increase or (decrease) in the net income if Store I is closed?Enter an increase as a positive number and a decrease wtih a minus sign in front.

Name: question: what is the increase or (decrease) in the net income if stor
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Description: question: what is the increase or (decrease) in the net income if store 2 is closed? The following date relates to Your Company:TotalStore 1Store 2Sales$2,100,000$1,300,000$800,000VC$1,065,000$585,000$480,000CM$1,035,000$715,000$320,000Traceable fixe

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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question: what is the increase or (decrease) in the net income if store 2 is closed?

The following date relates to Your Company:
Total
Store 1
Store 2
Sales
$2,100,000
$1,300,000
$800,000
VC
$1,065,000
$585,000
$480,000
CM
$1,035,000
$715,000
$320,000
Traceable fixed costs
$497,500
$165,000
$332,500
Segment margin
$537,500
$550,000
($12,500)
Common fixed costs
$370,000
$210,000
$160,000
$167,500
$340,000
($172,500)
NI
Your Company is considering closing Store 2. If Store 2 is closed, 65% of its traceable fixed expenses could be
avoided. Also, the closing of Store 2 would result in a 15% increase in sales in Store 1. Your Company allocates
common fixed expenses on the basis of sales dollars and none of these costs would be saved if a store were shut
down. What is the increase or (decrease) in the net income if Store I is closed?
Enter an increase as a positive number and a decrease wtih a minus sign in front.

Expert Solution

Step 1

Given that:

Traceable fixed costs of store 2 = $332500

Unavoidable traceable fixed costs = $332500 * (1 - 65%) = $116,375

Increase in sales for store 1 = 15% of existing sales = 15% * 13,00,000 = $195,000

Sales after increase = Existing Sales + Increase in sales = 13,00,000 + 195,000 = $14,95,000

Variable cost ratio = Variable costs/Sales = 585000/13,00,000 = 45%

Variable costs on increased sales = 14,95,000 * 45% = $672,750

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