Question

East Meets West Ltd. operates two stores, one in Victoria and another in Halifax. The following income statements were prepared for the most recent year

The store equipment and leasehold improvements have no market value. The building leases can be cancelled without penalty.

Required

a. Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?

b. Should management close the Halifax store? Assume that corporate overhead would be reduced by $100,000 if the Halifax store is closed.

						Victoria	Halifax
Net Sales						3780000	960000
Variable costs:
Cost of goods sold						1512000	528000
Sales commission						189000	48000
Utilities						17200	15300
Contribution margin						2061800	368700
Fixed costs:
Annual building lease						84000	39000
Salaries						380000	180000
Allocated corporate overhead						750000	250000
Amortization of store equipment & Leasehold improvements						60000	30000
Operating income (loss)						787800	-130300

Answer 1

IF YOU HAVE ANY DOUBTS COMMENT BELOW I WILL BE TTHERE TO HELP YOU..ALL THE BEST..

AS FOR GIVEN DATA.

1. victoria store

break even sales = (fixed costs/contribution margin) = (1274000/2061800)*3780000 =2335687

Halifax store

break even sales = (499000/368700) *960000 = 1299267

2. if Halifax store is closed

costs to be incurred even after closing 150000 (corporate over head after reduction) and amortisation 30000

these costs are (180000) are more than the loss incurred, thus it is not advisable to close the store

I HOPE YOU UNDERSTAND..

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