Reference: 09-07
Condensed Monthly Operating Income Data for Cosmo Inc

question 69

Multiple Choice

Reference: 09-07
Condensed monthly operating income data for Cosmo Inc. for November is presented below. Additional information regarding Cosmo's operations follows the statement. $$\begin{array} { | l | c | l | c | } \hline & \text { Total } & \text { Mall Store } & \text { Town Store } \\\hline \text { Sales } & \$ 200,000 & \$ 80,000 & \$ 120,000 \\\hline \text { Less variable costs } & 116,000 & 32,000 & 84,000 \\\hline \text { Contribution margin } & 84,000 & 48,000 & 36,000 \\\hline \text { Less traceable fixed expenses } & 60,000 & 20,000 & 40,000 \\\hline \text { Store segment margin } & 24,000 & 28,000 & ( 4,000 ) \\\hline \text { Less common fixed expenses } & 10,000 & 4,000 & 6,000 \\\hline \text { Operating income } & \$ 14,000 & \$ 24,000 & \$ ( 10,000 ) \\\hline\end{array}$$ Three-quarters of each store's traceable fixed expenses are avoidable if the store were to be closed. Cosmo allocates common fixed expenses to each store on the basis of sales dollars.
Management estimates that closing the Town Store would result in a ten percent decrease in Mall Store sales, while closing the Mall Store would not affect Town Store sales.
The operating results for November are representative of all months.
-Cosmo is considering a promotional campaign at the Town Store that would not affec? the Mall Store. in Cosmo's operating income of:

• A)$(1,400).
• B)$3,400.
• C)$7,000.
• D)$(16,800).

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