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:
Net sales $3,780,000 $960,000
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
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
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.
- Calculate the dollar value of sales required for each store to break-even assuming that all of the fixed costs are to be covered?
- Should management close the Halifax store? Assume that corporate overhead would be reduced by $100,000 if the Halifax store is closed.