Reference no: EM132614585

A company has three locations. The income statements for the most recent accounting period are shown below:

                                                                        Avon                       Berlin                           Portland

Sales                                                 $750,000             $250,000                      $550,000

Variable costs                                     450,000                   $187,500                $330,000

Contribution Margin                              $300,000                    $62,500                $220,000

Traceable(direct) Fixed Costs                   $60,000                  $20,000                  $44,000

Allocated Fixed costs                             $165,000                  $55,000                  $121,000

Operating Income                                   $75,000                  ($12,500)                $55,000

If the Berlin location closes 80% of the Berlin business will go to the Avon location. The Avon location's traceable (direct) fixed costs will increase by $15,000. if they take over the Berlin business.

Required:

Question 1: Given these assumptions, what is the financial impact for the company as a whole if Berlin is eliminated. In addition, in your answer make sure to indicate whether the financial impact would be an increase or decrease in operating income.