Reference no: EM132656916

Ridley and Scott Mercantile operates two stores, one on Oriole Avenue and the other on Sheffield Road. Results for the month of May, which is representative of all months, are as follows:

                                                  Oriole Avenue Store            Sheffield Road Store                               Total

Sales revenue                           $84,400                               $122,000                                 $206,400

Variable expenses                        31,400                                   84,000                                115,400

Contribution margin                        53,000                                  38,000                                91,000

Direct fixed expenses                     19,400                                      40,000                               59,400

Common fixed expenses                   4,700                                       5,700                                 10,400

Total fixed expenses                       24,100                                       45,700                                 59,800

Operating income                          $28,900                                     $(7,700)                                    $21,200

The following information pertains to Ridley and Scott's operations.

Forty percent of each store's direct fixed expenses would continue if either store were closed. . Ridley and Scott allocates common fixed expenses to each store on the basis of sales dollars. Management estimates that closing the Sheffield Road store would result in a 10% decrease in the Oriole Avenue store's sales, while closing the Oriole Avenue store would have no effect on the Sheffield Road store's sales.

Problem 1: Calculate the operating income if the Sheffield Road store is closed.