Question: A company currently operates two stores, Uptown and Midtown:
Last year's results Uptown Midtown
Sales revenues $300,000 $400,000
Variable costs (120,000) (140,000)
Contribution margin $180,000 $260,000
Store related fixed costs (100,000) (100,000)
Allocated common fixed costs (90,000) (120,000)
Operating income (loss) ( $10,000) $40,000
The company is considering closing the Uptown store because of its sustained operating losses during the last two years. It is estimated that all of store related and 20% of common fixed costs allocated to Uptown can be avoided if the Uptown store is closed. What would have been total operating income for last year if the Uptown store had been closed before Jan 1st?
a) it would increase by $40,000
b) it would be lower than if Uptown had stayed open.
c) it would increase by $72,000.
d) it would increase by $118,000.