2 Condensed monthly operating income data for Senators Inc. for March 2020 is presented below. 3 4 Total Ottawa Store Montreal Store 5 Sales $ 194,800 $ 80,000 $ 114,800 6 Less variable expenses 112,360 32,000 80,360 7 Contribution margin 82,440 48,000 34,440 8 Less traceable fixed expense 60,000 20,000 40,000 9 Segment margin 22,440 28,000 (5,560) 10 Less common fixed expenses 10,000 4,000 6,000 11 Operating Income $ 12,440 $ 24,000 $ (11,560) 12 13 14 15 16 Additional information regarding Senator's operations includes: 75% of each store's traceable fixed expenses are avoidable if the store were to be closed Senator Inc. allocates common fixed expenses to each store on the basis of sales dollars. 17 18 19 Management estimates that closing the Montreal store would result in a 10% decrease in the Ottawa store sales, while closing the Ottawa store would not affect the Montreal store sales. 20 21 22 The operating results for March are representative of all months. 23 24 (b) 25 Senator Inc. is considering a promotional campaign at the Montreal store that would not affect the Ottawa store. Suppose that increasing monthly promotional expenses at the Montreal store by $ 5,000 will increase the Montreal store sales by 10% 26 27 28 29 Required: 30 (a) A decision by Senator Inc. to close the Montreal store would result in what monthly increase (decrease) in Senator's operating income? 31 32 29 Required: 30 (a) A decision by Senator Inc. to close the Montreal store would result in what monthly increase (decrease) in Senator's operating income? 31 32 33 34 35 36 37 Net increase (decrease) in operating income if Montreal store is closed 38 39 40 (b) By how much would the monthly operating income of Senator's increase (decrease)? 41 42 43 44 45 46 Increase (decrease) in monthly operating income 47