Condensed monthly operating income data for Korbin, Inc., for May follows:
Urban Suburban
Store Store Total
Sales $80,000 $120,000 $200,000
Variable costs 32,000 84,000 116,000
Contribution margin $48,000 $ 36,000 $ 84,000
Direct fixed costs 20,000 40,000 60,000
Store segment margin $28,000 $ (4,000) $ 24,000
Common fixed cost 4,000 6,000 10,000
Operating income $24,000 $ (10,000) $ 14,000
Additional information regarding Korbin's operations follows:
• One-fourth of each store's direct fixed costs would continue if either store is 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.
Question: 37A decision by Korbin to close the Suburban Store would result in a monthly increase (decrease) in Korbin's operating income of
A. $(10,800)
B. $(6,000)
C. $(1,200)
D. $4,000
HI can any one help please why the shaded line is not considered in the answer
The correct answer is A
Thanks in advance
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Nermin
Egypt
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