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Question - Fresh Juice has three locations in Kamloops: Downtown, North Shore and Dufferin. Management is concerned about the performance of the downtown location, the rent is high and management is debating closing the store. A company-wide segmented income statement follows:
Total
Down- town
North Shore
Dufferin
Sales
$900,000
$300,000
$350,000
$250,000
Variable Expenses
610,000
210,000
225,000
175,000
Contribution Margin
290,000
90,000
125,000
75,000
Traceable Fixed Expenses
110,000
40,000
Territorial Segment Margin
65,000
(20,000)
50,000
35,000
Common Fixed Expenses
Net Operating Income
$25,000
The North Shore and Dufferin locations could expect a 5% decrease in revenues due to lost promotional synergies closing the prominent downtown location.
Required:
Prepare a new segmented income statement assuming the Downtown location is closed.
Should the company close the Downtown location (type YES or NO below)?
What will be the effect on net operating income if the Downtown location is closed (state whether net operating income will increase or decrease and by what amount)?
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