Problem 12-26 (continued)
2. Based on the data in (1), the North Store should not be closed. If the
store is closed, then the company’s overall net operating income will
3. Under these circumstances, the North Store should be closed. The
computations are as follows:
Gross margin lost if the North Store is closed (part 1) …..
$(316,800)
Gross margin gained from the East Store: $720,000 ×
1/4 = $180,000; $180,000 × 45%* = $81,000 …………
81,000
Net operating loss in gross margin …………………………...
(235,800)
Less costs that can be avoided if the North Store is
closed (part 1) …………………………………………………..
287,000
Net advantage of closing the North Store …………………..
$ 51,200
*The East Store’s gross margin percentage is:
$486,000 ÷ $1,080,000 = 45%
Problem 12-28 (continued)
3. Other factors that the company should consider include:
a. Will volume in future years increase, or will it remain constant at
60,000 units per year? (If volume increases, then renting the new
equipment becomes more desirable, as shown in the computations
above.)
