Problem: Beautifully Fabulous Beauty Salon (BFBS) manufactures has two stores. The most recent monthly Income Statement for BFBS.
|
|
Total
|
Store I
|
Store II
|
|
Sales
|
$2,000,000
|
$1,200,000
|
$800,000
|
|
Less variable expenses
|
1,200,000
|
840,000
|
360,000
|
|
Contribution margin
|
800,000
|
360,000
|
440,000
|
|
Less traceable fixed expenses
|
400,000
|
220,000
|
180,000
|
|
Segment margin
|
400,000
|
140,000
|
260,000
|
|
Less common fixed expenses
|
300,000
|
180,000
|
120,000
|
|
Net operating income
|
$ 100,000
|
$( 40,000)
|
$140,000
|
BFBS is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue unchanged. Also, the closing of Store I would result in a 20% decrease in sales in Store II. BFBS allocates common fixed expenses on the basis of sales dollars.
The following items will be assessed in particular:
1. Report that evaluates and discusses the impact of the decision of closing Store I. Ensure that you include in your discussion the relevance of traceable and common fixed expenses.