Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement...
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Northern Stores is a retailer in the upper Midwest. The most recent monthly income statement for Northern Stores is given below:
Total
Store I
Store II
Sales
$2,100,000
$1,300,000
$800,000
Less variable expenses
1,300,000
942,000
358,000
Contribution margin
800,000
358,000
442,000
Less traceable fixed expenses
300,000
111,000
189,000
Segment margin
500,000
247,000
253,000
Less common fixed expenses
500,000
250,000
250,000
Net income (loss)
$0
($3,000)
$3,000
Northern is considering closing Store I. If Store I closed, one-half of its traceable fixed expenses would continue to be incurred. Also, the closing of Store I would result in a 10% decrease in contribution margin in Store II. Northern allocates common fixed expenses based on sales dollars and none of these costs would be saved if a store were shut down. Required: Compute the overall increase or decrease in the net income of Northern Stores if Store I closed.
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