The most recent monthly income statement for Greenie Stores is given below:
Total
Store A
Store B
Sales.................................. 1,600,000
$700,000
$900,000
Variable expenses............. 800,000
350,000
450,000
Contribution margin.......... 800,000
350,000
450,000
Traceable fixed expenses.. 500,000
150,000
350,000
Store segment margin....... 300,000
200,000
100,000
Common fixed expenses… 200,000
87,500
112,500
Net operating income........ $ 100,000
$112,500
($ 12,500)
Due to its poor showing, consideration is being given to closing Store B. Studies show that if Store B is closed, one-fifth (20%) of its traceable fixed expenses will continue unchanged. The studies also show that closing Store B would result in a 20 percent increase in sales in Store A. The company allocates common fixed expenses to the stores on the basis of sales dollars.
Compute the overall increase or decrease in the company's operating income if Store B is closed. Show your work! (14 PTS)