MIDTERM PROJECT

PROBLEM $1$

Condensed monthly operating income data for $CO-$BED Inc. for May follow:

Additional information regarding $CO-$BED's operations follows:

One$-$fourth $of$ each store's direct fixed costs would continue $if$ either

store $is$ closed.

$CO-$BED allocates common dixed costs $to$ each store $on$ the basis $of$

sales Pesos.

Management estimates that closing $CO-$MOT Store would result $ina$

$10\%$ decrease $in$ UNAN Store's sales. Whereas closing UNAN Store

would not affect $CO-$MOT Store's sales.

The operating results for May are representative $of$ all months.

From the above information, answer the following questions:

A decision $byCO-$BED $to$ close $CO-$MOT Store would result $in$ a monthly

increase $(decrease)inCO-$BED's operating income $by$ how much?

$CO-$BED $is$ considering a promotional campaign $atCO-$MOT Store that

would not affect UNAN Store. Increasing annual promotional expense $atCO-$

MOT Store $byP60,000in$ order $to$ increase this store's sales $by10\%$ would

result $in$ a monthly increase $(decrease)inCO-$BED's operating income during

the year $by$ how much? $(round$ off $to$ whole number$)$

One$-$half $ofCO-$MOT Store's Peso sales are from items sold $at$ variable cost

$to$ attract customers $to$ the store. $CO-$BED $is$ considering the deletion $of$ these

items, a move that would reduce $CO-$MOT Store's direct fixed expenses $by$

$15\%$ and result $ina20\%$ loss $ofCO-$MOT Store's remaining sales volume. This

change would not affect UNAN Store. A decision $byCO-$BED $to$ eliminate the

items sold $atcost$ would result $in$ a monthly increase $(decrease)inCO-$BED's

operating income $by$ what amount?