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

question 50

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.
-A decision by Cosmo Inc. in Cosmo's operating income of:

• A)$(10,800).
• B)$(6,000).
• C)$4,000.
• D)$(800).

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Definitions:

Average Variable Cost

The total variable costs (costs that change with the level of output) divided by the quantity of output produced, indicating the variable cost per unit of output.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one more unit of a good varies as production increases.

Industry Supply Curve

A graphical representation showing the total quantity of a good that firms in a particular industry are willing and able to supply at different price levels.

Price of An Input

Price of An Input refers to the cost associated with the resources used in the production of goods and services, such as raw materials, labor, and energy.