Reference no: EM132793887
Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below: Northern is considering closing 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 sales 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.
Total Store I Store II
Sales $2,100,000 $1,300,000 $800,000
Variable expenses 1,260,000 882,000 378,000
Contribution margin 840,000 418,000 422,000
Traceable fixed expenses 420,000 231,000 189,000
Segment margin 420,000 187,000 233,000
Common fixed expenses 350,000 210,000 140,000
Net operating income $ 70,000 $ (23,000) $ 93,000
Required:
Problem 1: Compute the overall increase or decrease in the net income of Northern Stores if Store I is closed.