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  3. a clothing company owns 2 outlets, one in los ange

A clothing company owns 2 outlets, one in Los Angeles and one in Cleveland. The...

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Accounting

A clothing company owns 2 outlets, one in Los Angeles and one in Cleveland. The Los Angeles store sales are $500,000, their variable
costs are $150,000 and their direct fixed costs are $75,000. The Cleveland store sales are $50,000, their variable costs are $15,000
and their direct fixed costs are $7,500. The head office's incurred fixed costs of $50,000 that were assigned to each store as allocated
fixed costs of $25,000 each. What would be the effect on each store's operating income if the allocated fixed costs from the head
office were assigned proportionally to sales?
The operating income from Los Angeles' operating income will decrease from $250,000 to $205,000 and Cleveland store's
operating income will increase from $2,500 to $25,000
The Operating Income from Los Angeles' operating income will decrease from $250,000 to $230,000 and Cleveland store's
operating income will increase from $2,500 to $22,500.
There will be no change in the Operating Income of the stores
The allocated fixed costs will decrease both stores' operating income proportionally.
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