The most recent monthly income statement for Gorgon Stores is given below:

	China Branch	Japan Branch	Total
Sales	P1,200,000	P800,000	P2,000,000
Less: Variable expenses	(840,000)	(360,000)	(1,200,000)
Contribution margin	P360,000	P440,000	P800,000
Less: Traceable fixed expenses	(210,000)	(180,000)	(390,000)
Segment margin	P150,000	P260,000	P410,000
Less: Common fixed expenses	(180,000)	(120,000)	(300,000)
Profit (loss)	(P30,000)	P140,000	P110,000

If China Branch were eliminated, then its traceable fixed expenses could be avoided. The total fixed expenses are merely allocated and would be unaffected.

a. What will be the new company profit (loss) if China Branch is eliminated? Show your computations.

b. What will be the decrease in company profit if Gorgon closes its China Branch and 20% of its traceable fixed expense would remain unchanged while Japan sales would decrease by 20%? Show your computations.

Answer rating: 100% (QA)

Answer A Fixed cost Fixed cost are those cost which are not affected by level of activity If product... View the full answer