Marshal Costumes Owns Two Stores and Management Is Considering Eliminating

question 113

Multiple Choice

Marshal Costumes owns two stores and management is considering eliminating the Mandarin store due to declining sales.Common fixed costs are allocated on the basis of sales.Contribution income statements are as follows: $\begin{array}{lrrr}&\text { Arlington }&\text {Mandarin}&\text { Total }\\\text { Sales } & \$ 300,000 & \$ 200,000 & \$ 500,000 \\\text { Variable costs } & 160,000 & 130,000 & 290,000 \\\text { Direct fixed costs } & 40,000 & 20,000 & 60,000 \\\text { Allocated fixed costs } & 80,000 & 65,000 & 145,000 \\\text { Net Income } & \$ 20,000 & \$(15,000) & \$ 5,000\end{array}$ Marshal's management feels that if they eliminate the Mandarin store, that sales in the Arlington store will increase by 10%.If the Mandarin store is closed, what is the incremental effect on profit for Marshal Costumes?

• A)Increase by $17,000
• B)Decrease by $36,000
• C)Increase by $22,000
• D)Decrease by $20,000

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Definitions:

Advertising Slogans

Advertising slogans are memorable phrases used in advertisements to convey the key message or benefits of a product or service to potential customers.

Registered Phrases

Registered Phrases are phrases that have been legally registered for protection, often in the context of trademarks to identify the services or goods of a particular source.

Distribution Function

The process of transporting, storing, and delivering products from the manufacturer to the consumer in an efficient manner.

Warehouse to Retailers

The process of moving products from storage facilities to retail stores for sale to consumers.