Northern allocates common fixed expenses based on sales

Reference no: EM13603686

Northern Light Stores is a retailer in the upper Midwest, with two stores currently operating. The most recent monthly income statement contained the following: UP Store Superior Store Total Company Sales $1,300,00 $800,000 $2,100,000 Variable Expenses 882,000 378,000 1,260,000 Traceable Fixed Expenses 231,000 189,000 420,000 Common Fixed Expenses 210,000 140,000 350,000 Northern Light is considering closing UP Store. If UP Store were closed, one-fourth of its traceable fixed expenses would continue to be incurred by Northern. Also, the closing of UP Store would result in a 20% decrease in the contribution margin of Superior Store. Northern allocates common fixed expenses based on sales dollars. None of these expenses would be avoided if a store were to be shut down.

1. Prepare an income statement in a format suitable for internal analysis and comparison of segments.

2. Calculate the overall increase or decrease in the net income of Northern Light if UP Store is closed.

Reference no: EM13603686

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