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East Meets West Ltd. operates two stores, one in Victoria and another in Halifax. The following income statements were prepared for the most recent...

East Meets West Ltd. operates two stores, one in Victoria and another in Halifax. The following income statements were prepared for the most recent year:

 

  Victoria Halifax

Net sales      $3,780,000 $960,000

Variable costs:

Cost of goods sold                   1,512,000    528,000

Sales commission                189,000                      48,000

Utilities       17,200      15,300

Contribution margin $2,061,8                $368,700

Fixed costs:

Annual building lease               84,000                            39,000

Salaries        380,000         180,000

Allocated corporate overhead    750,000                           250,000

Amortization of store equipment & leasehold improvements

60,000 30,000

 Operating income (loss)             $787,800    $(130,300)


The store equipment and leasehold improvements have no market value. The building leases can be cancelled without penalty. 

Required:

  1. Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?
  2. Should management close the Halifax store? Assume that corporate overhead would be reduced by $100,000 if the Halifax store is closed.

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