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Condensed monthly operating income data for Korbin Inc. for May follows:
Additional information regarding Korbin's operations follows: One-fourth of each store's direct fixed costs would continue if either store were closed. Korbin allocates common fixed costs to each store on the basis of sales dollars. Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales. The operating results for May are representative of all months. One-half of the Suburban Store's dollar sales are from items sold at variable cost to attract customers to the store. Korbin is considering the deletion of these items, a move that would reduce the Suburban Store's direct fixed expenses by 15% and result in a 20% loss of Suburban Store's remaining sales volume. This change would not affect the Urban Store. A decision by Korbin to eliminate the items sold at cost would result in a monthly increase (decrease) in Korbin's operating income ofA. $(1,200) B. $(7,200) C. $2,000 D. $(5,200) |