Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern

Stores is given below:

Total

Store I

Store II

Sales

$2,100,000

$1,300,000

$800,000

Less variable expenses

1,260,000

882,000

378,000

Contribution margin

840,000

418,000

422,000

Less traceable fixed expenses

420,000

231,000

189,000

Segment margin

420,000

187,000

233,000

Less common fixed expenses

350,000

210,000

140,000

Net income

$ 70,000

$ (23,000)

$ 93,000

Northern is considering closi

ng Store I. If

Store I is closed, one

-

fourth of its traceable fixed expenses would

continue to be incurred.

Also, the closing of Store I would result in a 20% decrease in contribution margin

in Store II. Northern allocates common fixed expenses on the basis of sales dollars and none of these costs

would be saved if a store were shut down.

Required:

Compute

the overall increase or decrease in the net income of Northern Stores if Store I is closed

Answer rating: 100% (QA)

Increase or Decrease in net income of Northern Stores if Store I i... View the full answer