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  • 1.  Part 2 - discontinuing of a department

    Posted 04-05-2020 10:46 AM
    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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  • 2.  RE: Part 2 - discontinuing of a department

    Posted 04-05-2020 10:55 AM
    • Korbin allocates common fixed costs to each store on the basis of sales dollars.

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    Nermin Egypt
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  • 3.  RE: Part 2 - discontinuing of a department

    Posted 04-13-2020 03:56 PM
    the reason is that allocated common fixed costs  related to discontinued department will not eliminated instead it will be reallocated on the remaining departments so the overall common fixed costs will not be reduced instead it will be reallocated 


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    Fadi Babbili
    Chief Financial Officer
    Beirut
    Lebanon
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  • 4.  RE: Part 2 - discontinuing of a department

    Posted 04-13-2020 04:29 PM
    Thank you so much for your help .

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    Nermin Egypt
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  • 5.  RE: Part 2 - discontinuing of a department

    Posted 04-16-2020 07:33 AM
    you are welcome , and good luck


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    Fadi Babbili
    Chief Financial Officer
    Beirut
    Lebanon
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  • 6.  RE: Part 2 - discontinuing of a department

    Posted 04-07-2020 08:28 PM
      |   view attached
    Hello Nermin,

    Hope you are doing great with CMA

    Please accept our apologies for being late in reply.

    I didn't get your point of "Shaded line" ?? So, I thought it would be more helpful to solve this case as per the following illustration & notes:
    • Urban's Variable cost % = $32,000 / $80,000 = 40%
    • Apply 40% on Urban's decreased sales to get relative VC ($72,000 x 40% = $28,800)
    • One-fourth of Suburban's direct fixed cost = $40,000 x 1/4 = $10,000 (Continued as Urban's DFC)
    • Common fixed cost is Irrelevant in decision making (Sunk cost) will remain in total regardless of what decision Korbin makes.
    Marginal Analysis_Korbin

    Wish you best of luck, success, safe & healthy condition

    Kind regards

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    Samer Ahmad, FMVA, SCA
    Kuwait
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    Attachment(s)



  • 7.  RE: Part 2 - discontinuing of a department

    Posted 04-13-2020 04:25 PM
    Thank you so much Mr. Sameh I got it I appreciate your effort

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    Nermin Egypt
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