Problem 7-17 Comparing Traditional and Activity-Based Product Margins [LO7-1, LO7-3, LO7-4, LO7-5] Smoky Mountain Corporation ma
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Answer:
Compute the increase or decrease that closing Store 3 should cause in: a. Total monthly sales for Drexel-Hall stores.
- total monthly sales should decrease from $1,800,000 to $1,380,000 = a $420,000 reduction
b. The monthly responsibility margin of Stores 1 and 2.
- store 1 responsibility margin increased from 10% to 12.55% (2.55% increase)
- store 2 responsibility margin increased from 9% to 13.69% (4.69% increase)
c. The company’s monthly income from operations.
- increased from $72,000 to $140,200 ($70,200 increase)
Explanation:
Store Store Total
1 2
Sales $660,000 $720,000 $1,380,000
Variable costs $409,200 $453,600 $862,800
Contribution margin $250,800 $266,400 $517,200
Controllable fixed costs $120,000 $102,000 $222,000
Performance margin $130,800 $164,600 $292,200
Committed fixed costs $48,000 $66,000 $114,000
Store responsibility margin $82,800 $98,600 $178,200
Common fixed costs $38,000
Income from operations $140,200
