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Analysis of Selling Price and Unit Cost for Profitability

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Beautifully Fabulous Beauty Salon (BFBS) manufactures has two stores. The most recent monthly Income Statement for BFBS.

Total
Store I
Store II

Sales
$2,000,000
$1,200,000
$800,000

Less variable expenses
1,200,000
840,000
360,000

Contribution margin
800,000
360,000
440,000

Less traceable fixed expenses
400,000
220,000
180,000

Segment margin
400,000
140,000
260,000

Less common fixed expenses
300,000
180,000
120,000

Net operating income
$ 100,000
$( 40,000)
$140,000

BFBS is considering closing Store I. If Store I is closed, one-fourth of its traceable fixed expenses would continue unchanged. Also, the closing of Store I would result in a 20% decrease in sales in Store II. BFBS allocates common fixed expenses on the basis of sales dollars.

The following items will be assessed in particular:

Report that evaluates and discusses the impact of the decision of closing Store I. Ensure that you include in your discussion the relevance of traceable and common fixed expenses.

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Solution Summary

Computations done in Excel (click on cells to see formula) and report provided below computations.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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