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Question(s) / Instruction(s):

A company currently operates two stores, Uptown and Midtown:

                                                                Last years results            Uptown               Midtown

Sales revenues                                                 $300,000              $400,000

Variable costs                                                    (120,000)             (140,000)

Contribution margin                                       $180,000              $260,000

Store related fixed costs                                               (100,000)             (100,000)

Allocated common fixed costs                   (90,000)                (120,000)

Operating income (loss)                                                ($10,000)             $40,000

The company is considering closing the Uptown store because of its sustained operating losses during the last two years. It is estimated that all of store related and 20% of common fixed costs allocated to Uptown can be avoided if the Uptown store is closed. What is the amount of avoidable costs if the Uptown store is closed?

 a)           $100,000.

 b)           $190,000.

 c)           $118,000.

 d)           $238,000.

 

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